Affordability Score: Assessing Market Accessibility for Investors

The Affordability Score is a pivotal metric that evaluates the financial attainability of real estate within specific markets, juxtaposing current median house or unit prices against median household incomes. By calculating the median multiple—how many years of household income would be required to purchase a median-priced home or unit—this score provides a clear, quantifiable measure of affordability within an area. The scoring system is calibrated such that an optimal score is assigned to suburbs where the median multiple is 7 years, reflecting a balanced market where real estate is within reach for a significant portion of the local population.

Conversely, a score deteriorates as the median multiple exceeds 20 years, indicating a market where property prices far outstrip local earning capacities, potentially limiting buyer pool to only the most affluent.

This affordability metric is especially crucial for investors, as it sheds light on the broader market appeal of properties. Suburbs with a favourable Affordability Score are likely to attract a wider array of buyers, suggesting a healthy, dynamic market conducive to investment. Such areas are characterised by their alignment with the financial realities of the average household, indicating a sustainable demand base over the long term.

However, it's noteworthy that some high-end, prestige markets operate on a different dynamic, driven by buyers for whom the local median income may not be a limiting factor. While these markets can offer unique investment opportunities, they represent a different risk and reward profile, often less influenced by traditional affordability metrics.

For the investor class, the Affordability Score is an indispensable tool in portfolio strategy development. It allows investors to identify areas where real estate investments are not only potentially lucrative but also supported by fundamental economic accessibility. This insight is invaluable for making informed decisions that consider both immediate returns and the long-term viability of the investment, ensuring that strategies are aligned with markets exhibiting both growth potential and a solid foundation of affordability.

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