Home Loan Affordability Indicator
The Home Loan Affordability Indicator (HLAI) shown in Table
5.4 aims to capture the effect of the main influences on housing affordability
- average incomes, the average size of a home loan and average interest
rates. This indicator is produced jointly by the Real Estate Institute
of Australia and mortgage insurer MGICA Ltd. It is published on a quarterly
basis, and is available at both a national and state level.
The HLAI is calculated as follows:
The median annual family income data are derived from the results of
the ABS Income Distribution Survey, updated on the basis of the quarterly
change in average weekly earnings. Average annual loan repayment figures
are calculated using the average size of new loans made in the quarter,
assuming that the loan is being repaid at average interest rates (based
on the rates offered by major lenders in Australia). Until recently, 'major
lenders' included only banks and building societies but from the March
quarter 1996, the rates offered by other financial institutions providing
home loans will be included.
An increase in the indicator will result from either a rise in average
incomes or a fall in average loan repayments. Thus, a rise in the indicator
means that home loans are more affordable.
Graph 1 shows the movement in the indicator since it was first published
in March 1980.
Graph 1
In December 1995 (the latest quarter for which figures are available),
the HLAI rose 3.3 per cent. This was the second quarter to show an improvement
in affordability conditions, after six quarters of deterioration in the
indicator. The December quarter improvement reflects a number of factors:
- increased competition in the home lending market, with traditional
lenders having to match the services and rates offered by newer non-bank
lenders.
- lower interest rates - banks and building societies are now offering
lower rates and the official cash rate has remained unchanged since
December 1994.
- faster wage growth (although this could lead to higher inflation,
possibly resulting in higher interest rates).
Graph 2 shows the two series used to construct the HLAI. As would be
expected with data unadjusted for inflation, average incomes have risen
steadily over the period shown, with fairly small movements from quarter
to quarter. On the other hand, average monthly mortgage repayments have
shown much greater volatility, particularly in the period since June 1988.
Typically, movements in loan repayment costs have been the main explanatory
factor behind movements in the HLAI, although in the most recent quarter
both factors made an equal contribution, with average loan repayments
falling 1.6 per cent and median family incomes increasing 1.6 per cent.
Graph 2
The lowest value of the HLAI ever recorded is 27.4, recorded in the September
and December quarters of 1989. At this time, average loan costs were at
record levels, with the average monthly loan repayment exceeding $1,000
in the December quarter 1989. At present, the average monthly loan repayment
is $973.
The HLAI has never exceeded the value recorded in the first quarter that
the indicator was produced (57.4). The indicator fell below 50 in December
1984, and has only exceeded 50 in one quarter since then - December 1993,
when a level of 52.3 was reached.
Further information can be obtained by contacting a member of the Statistics
Group of the Parliamentary Research Service.
This feature was prepared by Nicola Chedgey.
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