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
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.
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
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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