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Housing affordability in Australia declined slightly in the final quarter of 2013, driven by the impact of previous interest rate cuts tapering off, according to the Housing Industry Association, the voice of Australia’s residential building industry.

‘Those in the housing market or who have been on its cusp of and then entered in recent years have experienced a considerable improvement in affordability. This improvement has been driven by an easing interest rate cycle which now sees borrowing costs at or near record lows,’ said HIA chief economist, Harley Dale.

The HIA-Commonwealth Bank Housing Affordability Index eased by 0.5% in the December 2013 quarter as the impact from the last rate cut in August 2013 largely washed through the system, but Dale pointed out that the Index was nevertheless still at a level 8.4% higher than what was observed in the December 2012 quarter.

He predicts that in 2014 there are likely to be further gains in residential property prices, but in an environment of subdued household earnings growth and steady interest rates.

‘The strong cyclical improvement to affordability for existing participants in the home ownership market has therefore run its course. Addressing the large supply side impediments to a structural improvement in affordability for all Australians is one of the nation’s most prominent policy challenges,’ he pointed out.

‘Addressing this challenge requires focus from all levels of government and would provide considerable benefit to the Australian economy,’ he added.

The Housing Affordability Index declined in four out the six surveyed capital cities. Hobart saw a 9.2% fall, Sydney was down 4.4%, Perth down 2.5% and Brisbane down 1%. Both Adelaide and Melbourne recorded increases of  5.5% and the affordability index for the Australian Capital Territory declined by 1.2%.

In most states’ regional areas, the index increased, with rises of 4.4% in Victoria, 3.5% in South Australia, 3.2% in Queensland and 1.4% in Tasmania. The index declined in regional Western Australia by 6.8% and in regional New South Wales by 3.9%.

The HIA New House Affordability Index registered a fall of 0.5% for the December 2013 quarter, indicating that new houses remained slightly less affordable than established houses.

This article was republished with permission from Property Wire.