Melbourne housing affordability crisis prices families out of their own suburbs, prompts calls to address key mortgage game-changer

There are hundreds of Melbourne suburbs where residents earning a typical wage couldn’t afford to buy a house today, new research shows.

Hundreds of Melbourne suburbs are now so unaffordable even the families living in them couldn’t afford to buy a house there today.

New data crunched by real estate services and research group Oliver Hume shows there are 407 suburbs where the typical family could not afford to buy a house today.

There are just 36 areas where the local wage would be enough to buy a house with, mostly in Melbourne’s outer ring including Wyndham Vale, Mickleham and Cranbourne South.

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But a Senate Inquiry recommendation to change the rules around how banks lend us money could change the situation in dozens of suburbs — and boost first-home buyer budgets by more than $20,000.

Oliver Hume’s figures show that a 1 per cent reduction to the nation’s 3 per cent serviceability buffer for home loans would be enough to put 60 Melbourne suburbs on the affordable list, based on local incomes.

The buffer is set by the Australian Prudential Regulation Authority and used by banks to stress-test mortgages to ensure a buyer could cope if their interest rate was 3 percentage points higher — which saved many households from disaster as interest rates surged from 2022 to 2023.

But last year a Senate Inquiry recommended the buffer be cut for first-home buyers amid expectations interest rates will now trend downward or remain flat for the foreseeable future.

Oliver Hume’s research shows that a couple with a $100,000 combined income today would be able to buy a house in just 16 suburbs, ranging from Melton in the west to Broadmeadows in the north. And even then, they would have to settle for a property in the bottom 25 per cent of the market.

At 1 Hemmingway Lane, Wyndham Vale, this house is for sale with a $530,000-$570,000 asking range. The suburb, in Melbourne’s west, is one of 16 in the city where a household with a $100,000 combined income would be able to afford a house, according to the Oliver Hume research.

Oliver Hume chief economist Matt Bell says lowering Australia’s mortgage serviceability buffer, set by the national banking regulator APRA, would be a good policy idea.

But if the buffer was reduced to 2.5 per cent, the level set in 2021, they would have access to an additional nine suburbs.

Dropping the safety net to 2 per cent, the figure first set by APRA in 2014, would boost a $100,000 household’s prospects to 37 suburbs — boosting their available funds by close to $40,000 and getting them back into suburbs including Frankston and Doveton.

A cut to the buffer has been pledged by Peter Dutton as part of his election pitch to first-home buyers.

If the cut was applied to all home loans, Oliver Hume’s figures show it could have a more pronounced effect — taking the number of suburbs where the local household would be able to afford a house up to 60, and potentially helping more families to upsize as their children grow.

This four-bedroom house at 8 Midmar Tce, Thornhill Park, has a $550,000-$580,000 price tag. Located within the Melton municipality, it’s another of the 16 areas in Melbourne where households bringing home $100k could purchase a house.

Smart Lending director and senior loan writer Melissa Gielnik says although Melbourne is affordable compared to some other Australian capitals, it remains hard for first-home buyers to get into the market.

Oliver Hume chief economist Matt Bell said he believed lowering the serviceability buffer was “good housing policy” in the short term.

“The real solution is the supply of more housing, but it’s hard to do and it takes time, so while this isn’t going to be a massive needle mover, that’s not a good reason not to do it – we should be pulling every lever we can,” Mr Bell said.

He added that the current rate of 3 per cent was penalising low to middle income households, and particularly first homebuyers.

With a $529,000-$549,000 range, 33 Colonus St, Kurunjang, is another of the Melbourne suburbs where families, couples or an individual on a $100k income could afford a house.

Real Estate Institute of Victoria president Jacob Caine says that if the mortgage serviceability buffer was reduced, it would likely push up house prices.

Melbourne-based Smart Lending director and senior loan writer Melissa Gielnik said the buffer should be slashed to 2 per cent — which would add about $40,000 to the budget of most homebuyers, depending on their incomes.

However, Ms Gielnik warned that even with a cut to the serviceability buffer many young buyers today would “just have to compromise” to get into the market — despite house prices in Melbourne being typically more affordable than Sydney, Brisbane and even Adelaide.

Real Estate Institute of Victoria president Jacob Caine said while lowering mortgage serviceability buffers would “unavoidably” fuel increased home prices — it was still worth doing.

A three-bedroom house at 29 Moroka Ave, Weir Views, with a $535,000-$570,000, is in one of a few Melbourne areas where people earning $100,000 could afford to buy a house.

Melbourne has very suburbs where households on their areas’s median wage could actually afford to but a house today. Picture: NCA NewsWire/Andrew Henshaw.

Cohen Handler buyer’s advocacy Victorian business director Zac Jacobs added that giving some buyers even an extra $20,000 could help them get into their suburb of choice rather than being pushed to the fringe.

“In the $500,000 to $700,000 range where most of our first-home buyers are playing in at the moment, that would definitely make a difference in them affording to buy a property that they want to get into or not,” Mr Jacobs said.

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