Housing affordability is declining in Australia. According to the Reserve Bank, over the past 30 years, the ratio of housing prices to income has increased substantially. This project aims to develop a new tool to measure housing and transport affordability in Australia, with Melbourne metropolitan selected as the pilot study area. Housing affordability is traditionally measured using the percentage of income spent on housing costs. As a common rule, households who spend more than 30% of their income on housing costs while earning in the bottom 40% of the income range are considered to be under housing stress. An important cost that is usually overlooked in measuring affordability is the transport or accessibility costs.
Housing costs are defined as the regular expenses made by a household for accommodation. These costs refer to all housing expenses such as mortgage repayments, rent payments, maintenance costs, taxes and other expenses. In this project, we estimate the housing cost using the weighted average of median weekly mortgage repayment and median weekly rent for each statistical zone. Median rather than the mean values are used to avoid skewing the results by outliers. The model also distinguishes the costs of owning or renting a unit versus a house. The mortgage cost data has been computed based on average 2014 median property price at each statistical area level two (SA2), a weighted average loan to value ratio of 73.035% from APRA 2014 data (September quarter), as well as a 5-year fixed interest rate of 4.99% from major lenders such as Westpac for September 2014. All other variables included in the housing costs are computed from the 2011 ABS census data.
The transportation costs mainly consist of the auto ownership cost as well as public transportation cost. The auto ownership cost consists of the cost of owning a vehicle, fuel, tires and car servicing and it is the average of all car makes and models listed in the RACV report 2014, in terms of total cost per kilometer. We also used journey to work data from 2011 ABS census, weekday non-work trips data and weekend trips data from VISTA 2007-2009 to estimate distance traveled to various destinations as a key element in the transportation costs calculation.
The traditional way of measuring housing affordability is inadequate as it overlooks transportation costs. We simply argue that living in the outer areas away from the CBD does not necessarily reduce the cost of living in Melbourne. Once the cost of transportation is taken into account, most of the outer suburbs become less affordable while some of the inner areas become more affordable.
A comprehensive analysis of location affordability must not be solely based on the housing and transportation cost distribution maps provided here. The comparison of affordability of two locations should also recognize differences in lifestyle, neighborhood characteristics, demography, etc. Overall, this project provides an improved way of measuring affordability of a location by taking into consideration both combined housing and transportation costs including public transportation expenses. This provides a more comprehensive way of thinking about the true affordability of place.
Dr. Meead Saberi
Department of Civil Engineering