Property Talk

How affordable is our housing market

How affordable is our housing stock at the moment FNB elegantly measure and report on two housing affordability measures - the average house price/per capita income ratio index and the bond installment value on the average-priced house/per capita income ratio index.

These measures mean that as house prices increase or the cost of servicing mortgage bonds increase, with income remaining the same, housing will become less affordable - i.e the index increases. Similarly if house prices and interest rates remain flat, but disposable income increases, then affordability improves - i.e the index declines.

For both credit dependent and cash buyers, the general two year improving trend in home affordability stalled in the first quarter of 2018 with a marginal increase in the index. The weak economic growth in the first quarter has caused income to decline in our affordability formula and therefore the index has increased.

However when considering the historical affordability measures we see that for the years 2013 up to the 2nd quarter of 2016 an upward trend or declining affordability was evident. From 2016 the overall trend has been an improvement in affordability of the housing stock to the tune of -4.53% despite the slight 1st quarter deterioration.

When considering the recent relative year-on-year growth rates of per capita disposable income growth versus house price growth we see in the first quarter per capita income growth was 5.1% and over the same period house price growth was a lesser 3%.

In answering the question as to how affordable our housing market is, it all depends which time frame you consider. The average house price/per capita disposable income index is -25.3% down on its boom time high reached in the 3rd quarter of 2007. The new bond installment/per capita income ratio is -40.4% lower than its 1st quarter 2008 high point. Compared to the boom time period of a decade ago, house prices are very affordable.

An interesting aspect of home ownership affordability is the relative cost of municipal rates, water and non-electricity services and electricity to per capita disposable income. Considering each of these three in turn, we notice that the main culprit has been Eskom's electricity rate hiking with this measure being up 83.2% since 2008.

Municipal rates relative to disposable income is up 34.31% and water and non-electricity tariffs/per capita disposable income is only up by a moderate 17.46% from 2008 to the 1st quarter of 2018. As a property investor it is therefore essential to ensure these costs are passed on to the tenants that consume the services.

Sectional schemes which do not have separate metering for water or electricity should therefore revise how they record and pay for these utilities. I found it particularly interesting that the affordability measure for home maintenance and repairs has actually declined by -15.49% over the same period.