Housing Affordability: What is the Price-to-Income Ratio?

Housing Affordability: What is the Price-to-Income Ratio?

When people talk about housing affordability, one of the clearest measures is the housing price-to-income ratio. This ratio compares the median house price to the median household income. It’s a basic calculation - if the average home costs five times the average income, the ratio is 5.

For much of the past, this figure sat closer to 4. Today, in many areas, it’s sitting at 8 or even higher. That means homes now cost double what they once did when compared to income growth (UNSW BusinessThink).

Why It Matters

When the price-to-income ratio climbs, it starts to affect everyday households in real ways. More families are classed as being in “housing stress,” which happens when over 30% of income is going towards keeping a roof overhead. Right now, more than one in four households are in that situation (AIHW).

Renters are also feeling the squeeze. In many capital cities, rent is taking up 30 to 35 per cent of income (Times Money). On top of that, bigger mortgages make buyers more vulnerable when interest rates rise, and younger generations are finding it harder to get started without financial help from family.

What It Means for the Market

A high price-to-income ratio doesn’t necessarily point to a housing crash. What it does mean is that the market becomes more sensitive to things like interest rate changes, inflation, or a slowdown in wage growth.

For buyers, it’s important to stay clear on budget and consider how future rate rises might affect repayments. Sellers need to be realistic on pricing — well-presented homes with fair price points always attract stronger competition. Investors that balance rental yields with tenant affordability (as renters are under the same income pressures as buyers) may have slightly lower immediate rental income but may maintain more consistently tenanted properties – creating a higher rental yield over time.

Curious about how affordability is shaping property trends in your suburb?  Give yourself an advantage and get in touch with your local RealWay office for tailored advice.  The housing affordability price-to-income ratio changes are Australia wide – at RealWay, our local insights and advice give our clients the confidence to make smarter decisions in today’s property market.