Freaking out about the rate rises that categorised much of Australia's property market in 2022/2023 - to say nothing of rising energy bills and the generally high cost of living?

Before you do, it's worth taking a look at Australia's housing-to-income ratio and where it could be worse (and better) around the world.

What is house-to-income ratio?

Otherwise known as debt-to-income (DTI) ratio or similar, the house-to-income ratio is the price of your home compared to that of your income.

Or, the gap between incomes and property prices.

Whichever way you look at it, housing affordability and the impact it's having on middle-income households is now a big issue around the world, particularly in developed countries, says data hub Knoema.

What is a reasonable housing-to-income ratio?

There are a lot of figures swirling around but 30:40 is seen as reasonable benchmark figure that you should aim not to exceed.

In other words, the average income Australian who falls in the bottom 40% of the country for wages should not pay more than 30% of these wages on housing costs.

Those who do are typically described as being in "housing stress".

Such say several sources from a parliamentary brief in 2016 to an Australian Housing and Urban Research Institute (AHURI) brief in 2019.

The latter is also careful to note that household costs can include paying either rent or your mortgage, as well as rates, taxes, household insurance, body corp, repairs, and maintenance.

As well, AHURI notes that as of 2015–2016, you were considered at the bottom 40% of wage earners if you were bringing in around $65,000 in gross household income.*

If we're going with this figure, you would be considered to be in housing affordability stress if you pay more than $377 per week on household costs.

* It's now well known that there is an increasingly large gap between very high and average or low-income earners, with COVID only widening this gap, especially when it comes to property ownership.

A report released in July 2022 by UNSW Sydney and the Australian Council of Social Services (ACOSS) showed 10% of our richest people owned half of Australia's wealth.

"The next 30%, whom we call the ‘comfortable middle’ (noting however that they are in the top half of the distribution) had 38% of all household wealth, leaving the remaining 60% with 17%," says the report.

Which country has the highest housing-to-income ratio in the world?

Again, this isn't an easy question to answer as there are multiple different answers.

However, here's what we discovered:

Organisation for Economic Co-operation and Development (OECD)*
Q2 2022 (based on 2015 prices and incomes)

1. Czech Republic - house prices have grown 52% faster than incomes since 2015
2. Netherlands & Luxembourg - house prices have grown 51% faster than incomes 
3. Portugal & New Zealand - house prices have grown 47% faster than incomes
4. Canada & Austria - house prices have grown 43% faster than income
5. Germany & the United States - house prices have grown 40% faster than incomes
6. Hungary - house prices have grown 36% faster than incomes

* OECD is only made up of developed countries with many Asian, African, and South American countries not part of this group.

German-based Statista tends to agree with the OECD but it is also limited to around 170 countries worldwide.

However, the International Monetary Fund (IMF) - which includes 190 countries, many of them in developing countries - reported that the highest housing-to-income ratio figures in the final quarter of 2021 were as follows:

1. Czech Republic 
2. New Zealand
3. Portugal
4. Netherlands
5. Luxembourg
6. Iceland
7. Germany
8. Canada
9. Hungary
10. Slovak Republic

Meanwhile, the countries with the lowest housing-to-income ratios (from lowest to highest) were:

1. India
2. Peru
3. United Arab Emirates
4. Russia
5. Romania

Is Australia's housing-to-income ratio considered high?

No, not really.

According to the above IMF figures, we're ranked number 22 - one better than the United Kingdom and well after New Zealand, the US, Chile, and Japan.

The OECD ranks Australia as number 16 but again, that's well below Europe, the UK, and the US as well as New Zealand.

Indeed, according to OECD - and Statista also backs this up - our house prices have grown just 12% faster than our incomes since 2015, which ain't too shabby, especially when compared to New Zealand's 47% change.

Even in 2018, we were only looking at a 10% lift and this barely changed even during COVID.

However, there's also no doubt that property prices rose enormously during COVID - and are still lifting in Adelaide, Brisbane, Darwin and Perth.

Bottom line: it's not great out there - but it could be far worse.

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