Housing in Victoria

An initiative of the Cities of Melbourne,
Yarra, Stonnington and Port Phillip
under the Inner Melbourne Action Plan

An interactive website providing data on housing and housing affordability indicators in Victoria.

Housing affordability indicators: Reports

Housing affordability is a function of the complex interaction between three elements:

  1. Household income
  2. Household housing costs (as one component within a specified standard of living)
  3. Cost of the remaining components within a specified standard of living.

However, our capacity to assess whether housing is affordable for individual households is restricted by the data available and the limitations it imposes on measuring the various facets of housing affordability. For this reason, Swinburne Institute for Social Research has developed a number of measures of housing affordability which are indicative rather than conclusive, which differ by tenure and which seek to get at different aspects of the complexities of housing affordability.

Six indicators of housing affordability are used on this website:

  1. Sales by price segment
  2. Affordability and available stock
  3. Threshold income
  4. Ratio of housing costs to income
  5. Private rental affordability for low income households
  6. Private rental affordability for all households

Each of these indicators highlights a particular aspect of housing affordability within a geographical area. The following describes what each indicator measures and how it is calculated.

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Sales by price segment
What does it measure?

The “sales by price segment” housing affordability indicator measures the extent to which ranges of housing prices (price segments) are available within a specified geographical area. The number of sales within price segments in geographical areas and over time are compared by calculating the proportion of sales within five price segments: low cost, low-medium cost, medium cost, high cost and top end.

How is it calculated?
  1. In each year Valuer-General’s unit record price data for the Melbourne Statistical Division (MSD) is ranked and divided into five equal segments (quintiles) and, lower and upper prices in each segment determines the five price segments.
  2. For each geographical area, the number of sales within each price segment is determined using the MSD price segments.
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Affordability and available stock
What does it measure?

The “affordability and available stock” housing affordability indicator measures the proportion of dwellings available for different income groups. This measure divides household incomes into deciles, calculates the affordable house price at each decile point, compares this affordable house price with the prices of housing stock sold and determines the proportion of sales that is affordable, and thus available, for each decile.

How is it calculated?
  1. ABS household income data for a benchmark geographical area (Metropolitan Melbourne or Regional Victoria) as collected in the 2006 Census and 2011 Census is ranked and divided into deciles.
  2. These deciles are indexed using the ABS Wage Price Index (WPI) (Catalogue No. 6345.0) to the specified year of analysis. The ABS WPI is used because it provides the best match between 2006 Census and 2011 Census.
  3. Affordable house prices at each household income decile point are calculated on the basis of the prevailing housing loan interest rates for the specified year of analysis (according to Reserve Bank of Australia data) and particular assumptions regarding housing loans, viz. that loan repayments will be less than 30% household income, that the amount borrowed will be 90% of the affordable house price and that the term of the loan will be 25 years.
  4. Using Valuer-General’s unit record price data for the specified geographical area and for the specified year, the sale price of dwellings and the affordable house prices are compared and the number of dwellings available to each household income decile is calculated.
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Threshold income
What does it measure?

The “threshold income” housing affordability indicator measures the income required to purchase a moderately priced dwelling in the specified geographical area over specified years. This threshold income is compared with another geographical area (Melbourne metropolitan area, region or LGA). The threshold income is useful for identifying the scale of an affordability problem as it reduces the data to a single meaningful figure.

How is it calculated?
  1. For the specified range of years, the Valuer-General’s median price data is used or, alternatively, the median price is determined from Valuer-General’s unit record price data for each year.
  2. Using the prevailing housing loan interest rates current for each year (according to Reserve Bank of Australia data) and assumptions regarding affordability and lending terms, viz. 90% loan limit, a 25 year loan term and mortgage repayment no more than 30% of income, the threshold income required to purchase the median priced dwelling is determined.
  3. The threshold income is then indexed to the latest year using CPI. This enables comparisons between years.
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Ratio of housing costs to household income
What does it measure?

The “ratio of housing costs to household income” housing affordability indicator is an affordability ratio (a ratio between annual mortgage repayment based on the median dwelling price and the average annual household income). This measure takes account of the changing relationships between median dwelling prices, household incomes and interest rates. The commonly accepted measure of affordability is that annual mortgage repayments should not exceed 30% of annual income.

How is it calculated?

The affordability ratio is calculated by dividing the annual mortgage repayment by the average annual household income for the specified years. This calculation makes the following assumptions.

  1. Average annual household income is a dual income based on the earnings of two persons. The average annual income of one person is calculated using the average of the four quarters of the ABS Average Weekly Earnings (Full Time Male Adult Total Earnings) for Victoria for the specified year multiplied by 52. The average annual income of the second person is two-thirds that of the first person.
  2. Annual mortgage repayments are based on
    1. a loan limit of 90% of the Valuer-General’s median dwelling price for the specified geographical area
    2. a loan term of 25 years
    3. the prevailing housing loan interest rate for the specified year (according to Reserve Bank of Australia data).
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Private rental affordability for low income households
What does it measure?

The “private rental affordability for low income (Centrelink) households” housing affordability indicator measures the number and percentage of rental dwellings which are affordable to households dependent of Centrelink incomes in each quarter. It is a measure of the extent to which the supply of rental housing is affordable. A dwelling is affordable where it is suitable for a particular sized household and where the rent to income ratio is less that 30%. It is available by bedroom size for each LGA.

How is it calculated?

This measure collates data from the September quarter of each year from the quarterly Office of Housing Rental Reports. The calculations by the Office of Housing are for each LGA and are based upon data provided by the Residential Tenancies Bond Authority. The measure assumes a match between the dwelling and a household size and a Centrelink income for a particular household size.

Thus, dwelling size is matched to particular household types receiving Centrelink incomes as follows:

  • 1-bedroom: Singles on Newstart
  • 2-bedrooms: Single parent with 1 child
  • 3-bedrooms: Couple on Newstart with 2 children
  • 4-bedrooms: Couple on Newstart with 4 children.

For each bedroom size/household type, rent assistance is subtracted from the rent, and the resulting rent is divided by the Centrelink income for that household type. Where the rent to income ratio is less than 30%, the dwelling is regarded as affordable.

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Private rental affordability for all households
What does it measure?

The “private rental affordability for all households” housing affordability indicator measures the capital value or total construction cost of rental dwellings which will be affordable to each household income decile. These capital values/construction costs can be benchmarked against the median housing price for the specified geographical area.

How is it calculated?
  1. Household income for a specified geographical area (Melbourne Metropolitan area) from the 2006 Census is ranked and divided into deciles.
  2. This household income is indexed to the latest specified year using the Consumer Price Index.
  3. Based on an affordable rent assumption (a rent to income ratio of 30%), the affordable household rent for each decile can be calculated.
  4. Assuming further, that the annual rental yield is 5% of the capital value or total construction cost of dwellings, the capital value/construction cost of affordable rental dwellings at each household income decile point is calculated.
  5. The capital value/construction cost at which rents are affordable for each household income decile is compared with the median dwelling price for the geographical area.
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Housing affordability indicators: Maps

Aspects of the data from five housing affordability indicators are mapped.

Sales by price segment: proportion of sales in the three lowest segments

This map uses data from the “sales by price segment” housing affordability indicator. The percentage of dwelling sales in the three lowest segments for all the geographical areas is divided among four groups with the following ranges: (i) less than 5% (ii) 5-15% (iii) 15-25% (iv) more than 25%. The map is available for either houses or units and at two geographical levels, local government area and suburb.

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Affordability and available stock: proportion of dwellings affordable to the sixth household income deciles

This map uses data from the “affordability and available stock” housing affordability indicator. The percentage of dwelling sales which are affordable to the sixth household income decile for all the geographical areas are divided among four groups with the following ranges: (i) less than 5% (ii) 5-15% (iii) 15-25% (iv) more than 25%. The map is available for either houses or units and at two geographical levels, local government area and suburb.

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Threshold income

This map uses data from the “threshold income” housing affordability indicator. The threshold income required to purchase the median priced dwelling for all the geographical areas is divided among four groups with the following ranges: (i) less than $69,999 (ii) $70,000-$119,999 (iii) $120,000-$169,999 (iv) more than $170,000. The map is available for either houses or units and at two geographical levels, local government area and suburb.

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Ratio of housing costs to household income

This map uses data from the “ratio of housing costs to household income” housing affordability indicator. The housing affordability ratio for all the geographical areas is divided among four groups with the following ranges: (i) less than 20% (ii) 20-25% (iii) 25-30% (iv) more than 30%. The map is available for either houses or units and at two geographical levels, local government area and suburb.

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Private rental affordability for low income households: proportion of affordable dwellings

This map uses data from the “private rental affordability for low income households” housing affordability indicator. The proportion of affordable rental dwellings for all the geographical areas is divided among four groups with the following ranges: (i) less than 5% (ii) 5-15% (iii) 15-25% (iv) more than 25%. The map is available for either houses or units and at two geographical levels, local government area and suburb.

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SEIFA

Socio-Economic Indexes for Areas (SEIFA) are produced by the Australian Bureau of Statistics using data from the 2006 Census. SEIFA ranks geographical regions/areas according to their level of social and economic well-being. It consists of four indexes as follows:

Index of Relative Socio-economic Advantage and Disadvantage

This Index looks at the whole continuum of advantage to disadvantage. It was created using 21 measures of relative disadvantage (similar to those used in the Index of Relative Disadvantage), as well as measures of relative advantage such as low or high income, internet connection, occupation and education. A lower score indicates relatively greater disadvantage and a lack of advantage in general, whereas a higher score indicates a relative lack of disadvantage and greater advantage in general.

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Index of Relative Socio-economic Disadvantage

This Index focuses on disadvantage and only measures of relative disadvantage. This Index includes 17 measures including low income earners, relatively lower educational attainment and high unemployment. A low score indicates relatively greater disadvantage in general, whereas a high score indicates a relative lack of disadvantage in general.

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Index of Economic Resources

This Index focuses specifically on economic resources of households within an area. It includes 15 measures such as: household income, housing expenditures (e.g. rent) and wealth (e.g. home ownership). A low score indicates a relative lack of access to economic resources in general, whereas a high score indicates relatively greater access to economic resources in general.

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Index of Education and Occupation

This Index reflects the general level of education and occupation-related skills of people within an area. It includes 9 measures such as qualifications achieved and whether further education is being undertaken, occupations that require a high level of skills, occupations that require a low level of skills, as well as unemployment. This index does not include any income measures. A low score indicates relatively lower education and occupation status of people in the area in general.

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Each index is used for particular purposes. For more information about the use of SEIFA indexes, the measures used in each, how they are constructed and how to use them see the Australian Bureau of Statistics 2008 publication entitled Information Paper: An Introduction to Socio-Economic Indexes for Areas (SEIFA) 2006 available at http://tinyurl.com/54qmqh or go to the ABS website at www.abs.gov.au.

The website presents maps of SEIFA data at four geographical levels as follows:

  • State - Victoria: SEIFA data for each local government area
  • Division – Melbourne: SEIFA data for each local government area
  • Region – Inner Melbourne: SEIFA data for each suburb
  • Local Government Area (Inner Melbourne Region only): SEIFA data for each Collection District

At each geographical level, SEIFA data is divided into quintiles. The range of the SEIFA scores within each quintile depends upon the geographical area. For the Victorian map, the SEIFA score of all Victorian LGAs are ranked and divided into five. For the Melbourne Statistical Division map, the SEIFA score for all metropolitan LGAs are ranked and divided into five. For the Inner Melbourne region map, the SEIFA score of all Melbourne suburbs are ranked and divided into five. For the Local Government Area map, the SEIFA score of all Melbourne Collection Districts are ranked and divided into five.

The SEIFA for an area can be found by hovering the mouse over the particular area.



Supported by

  • State of Victoria
  • City of Melbourne
  • City of Yarra
  • City of Port Phillip
  • City of Stonnington
  • Swinburne University of Technology