How much do you need to earn to afford a house or unit in your capital city?

EFFIE ZAHOS
Editor-at-Large · 5 July 2021
Find out how much you need to earn to afford a house or unit in your capital city without suffering mortgage stress. Plus, how long will it take you to save a 20% deposit?

It’s been a good year for property values around Australia. National home values rose 1.9% in June, taking annual growth to 13.5% for the financial year, according to the latest data by CoreLogic. House values rose by 15.6% over the year and there was a 6.8% lift in unit values over the same period.

“This is the highest annual rate of growth seen across the Australian residential property market since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth,” CoreLogic Head of Research for Australia, Eliza Owen, pointed out.

With the property market still running hot many first home buyers are probably worried about affordability. With that in mind, we decided to take a look at how much you need to earn to afford a house or unit in each capital city without being under ‘mortgage stress’.

The hypothetical scenarios assume you have saved a 20% deposit, so we asked the research team to figure out how long it would take you to save a deposit for a house or unit in each capital city. Keep in mind that there are other upfront costs you’ll also need to cover.

How much do you need to earn to afford a house in your capital city?

Canstar crunched the numbers to reveal how much you need to earn to be able to afford the repayments on a house in each capital city without suffering mortgage stress. This is based on the median house value and assumes you have a 20% deposit and that your annual mortgage repayments make up 29.99% of before-tax income.

The numbers show that Sydneysiders need to earn $169,737 to be able to comfortably afford the repayments on a house based on the median value of $1,224,613. Those in Perth need to earn $76,265 to avoid mortgage stress.

Annual income needed to afford a house in each capital city

Capital City Median Property Value Deposit (20%) Monthly Repayment Average Annual Gross Income Annual Gross Income Required to Avoid Mortgage Stress Difference
Sydney $1,224,613 $244,923 $4,242 $91,099 $169,737 -$78,638
Melbourne $929,769 $185,954 $3,221 $89,362 $128,883 -$39,521
Brisbane $657,551 $131,510 $2,278 $84,001 $91,150 -$7,149
Adelaide $551,538 $110,308 $1,911 $80,215 $76,465 $3,750
Perth $550,099 $110,020 $1,906 $95,706 $76,265 $19,441
Hobart $652,092 $130,418 $2,259 $77,381 $90,390 -$13,009
Darwin $567,842 $113,568 $1,967 $88,592 $78,706 $9,886
Canberra $877,311 $175,462 $3,039 $98,290 $121,601 -$23,311
Combined Capitals $781,645 $156,329 $2,708 $89,003 $108,356 -$19,353

Source: www.canstar.com.au – 2/07/2021. Median property prices from Corelogic (June 2021). Income based on ABS average weekly earnings, ordinary time earnings (Nov 2020; released Feb 2021). Income to avoid mortgage stress assumes annual mortgage repayments make up 29.99% of before-tax income. Mortgage stress is considered to be 30% or more of pre-tax income going towards servicing the mortgage. Repayment calculations assume principal and interest repayments on a loan with 3.21% interest rate (based on owner-occupier P&I loans available for $500,000 & 80% LVR, excluding intro-rate and first home buyer-only loans) and 30-year loan term.

How much do you need to earn to afford a unit in your capital city?

The table below shows how much you need to earn to be able to afford the repayments on a unit in each capital city without suffering mortgage stress. This is based on the median unit value and assumes you have a 20% deposit and that your annual mortgage repayments make up 29.99% of before-tax income.

Those living in Sydney need to earn the most ($110,077) to avoid mortgage stress while those in Darwin need to earn the least ($46,736).

Annual income needed to afford a unit in each capital city

Capital City Median Property Value Deposit (20%) Monthly repayment Average Annual Before-Tax Income Annual Before-Tax Income to Avoid Mortgage Stress Difference
Sydney $794,193 $158,839 $2,751 $91,099 $110,077 -$18,978
Melbourne $610,043 $122,009 $2,113 $89,362 $84,548 $4,814
Brisbane $415,536 $83,107 $1,439 $84,001 $57,579 $26,422
Adelaide $359,359 $71,872 $1,245 $80,215 $49,817 $30,398
Perth $395,979 $79,196 $1,372 $95,706 $54,898 $40,808
Hobart $492,748 $98,550 $1,707 $77,381 $68,303 $9,078
Darwin $337,048 $67,410 $1,168 $88,592 $46,736 $41,856
Canberra $501,754 $100,351 $1,738 $98,290 $69,543 $28,747
Combined Capitals $611,117 $122,223 $2,117 $89,003 $84,708 $4,295

Source: www.canstar.com.au – 2/07/2021. Median property prices from Corelogic (June 2021). Income based on ABS average weekly earnings, ordinary time earnings (Nov 2020; released Feb 2021). Income to avoid mortgage stress assumes annual mortgage repayments make up 29.99% of before-tax income. Mortgage stress is considered to be 30% or more of pre-tax income going towards servicing the mortgage. Repayment calculations assume principal and interest repayments on a loan with 3.21% interest rate (based on owner-occupier P&I loans available for $500,000 & 80% LVR, excluding intro-rate and first home buyer-only loans) and 30-year loan term.

How long will it take you to save a 20% deposit for a house in your capital city?

One of the hardest parts of getting your foot on the property ladder is saving the deposit. The Canstar research team calculated how long it would take to save a 20% deposit in each capital city. This is based on the median house value as at June 2021. It assumes you earn the average weekly earnings for each respective state and that you save 20% of your after-tax income.

As the table shows, it would take you 15 years and 6 months to save a 20% deposit for a house in Melbourne but if there were two of you that time could be shaved down to seven years and 10 months.

Time to save a 20% deposit for a house in each capital city (saving 20% of the average after-tax income)

Capital City Median Property Value Estimated Time to Save (Single Income) Estimated Time to Save (Dual Income)
Sydney $1,224,613 21 years 10 years & 5 months
Melbourne $929,769 15 years & 6 months 7 years & 10 months
Brisbane $657,551 11 years & 2 months 5 years & 10 months
Adelaide $551,538 9 years & 8 months 5 years
Perth $550,099 8 years & 2 months 4 years & 3 months
Hobart $652,092 11 years & 11 months 6 years & 2 months
Darwin $567,842 9 years & 1 month 4 years & 9 months
Canberra $877,311 13 years & 3 months 6 years & 9 months
Combined Capitals $797,287 13 years & 1 month 6 years & 9 months

Source: www.canstar.com.au – 2/07/2021. Median property prices from Corelogic (June 2021). Estimated time taken to save a 20% deposit based on the following assumptions: Starting income based on the average weekly earnings for each respective state (ABS Average Weekly Earnings; November 2020), wage growth of 2.5% p.a., property price growth of 2.5% p.a., 20% of after-tax income is deposited into a savings account with an interest rate of 1.82% (average bonus saver rate over the past 5 years), and interest earnings are taxed at the relevant marginal tax rate (based on the 2021-22 financial year) plus the 2% Medicare Levy. For the dual-income scenario, earnings are assumed deposited into a joint savings account.

How long will it take you to save a 20% deposit for a unit in your capital city?

Canstar worked out how long it would take to save a 20% deposit for a unit in each capital city. This is based on the median unit value as at June 2021. It assumes you earn the average weekly earnings for each respective state and that you save 20% of your after-tax income.

The table below shows that it ranges from five years and three months to 12 years and nine months assuming a single income. You can get there faster if there are two of you saving.

Time to save a 20% deposit for a unit in each capital city (saving 20% of the average after-tax income)

Capital City Median Property Value Estimated Time to Save (Single Income) Estimated Time to Save (Dual Income)
Sydney $794,193 12 years & 9 months 6 years & 6 months
Melbourne $610,043 9 years & 8 months 5 years & 1 month
Brisbane $415,536 6 years & 10 months 3 years & 7 months
Adelaide $359,359 6 years & 1 month 3 years & 3 months
Perth $395,979 5 years & 9 months 3 years & 1 month
Hobart $492,748 8 years & 10 months 4 years & 8 months
Darwin $337,048 5 years & 3 months 2 years & 9 months
Canberra $501,754 7 years & 3 months 3 years & 9 months
Combined Capitals $611,117 9 years & 9 months 5 years & 1 month

Source: www.canstar.com.au – 2/07/2021. Median property prices from Corelogic (June 2021). Estimated time taken to save a 20% deposit based on the following assumptions: Starting income based on the average weekly earnings for each respective state (ABS Average Weekly Earnings; November 2020), wage growth of 2.5% p.a., property price growth of 2.5% p.a., 20% of after-tax income is deposited into a savings account with an interest rate of 1.82% (average bonus saver rate over the past 5 years), and interest earnings are taxed at the relevant marginal tax rate (based on the 2021-22 financial year) plus the 2% Medicare Levy. For the dual-income scenario, earnings are assumed deposited into a joint savings account.

Cover image source: JodieWangss/Shutterstock.com


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