The Burrow
Aug 27, 2024
Home is where the heart is, but how much should it cost you?
A common rule of thumb is that the cost of keeping a roof over your head shouldn’t exceed 30% of your income.1 Some have a bit more leeway, with the Organisation of Economic Co-operation and Development (OECD) suggesting housing should never cost more than 40% of your income.2
If it does, you could be facing a significant burden from housing costs.
As experts in helping Australians compare home loans and interest rates and save on household finances, we gathered data on how many people were overburdened by housing costs – where more than 40% of their income goes towards housing. This includes mortgages and rent payments.
Using some of the latest available data, here are the countries where people face the biggest burden from housing costs on average.
Out of the 28 countries we compared, Canada had the highest number of overburdened households. A staggering 42.0% of Canadians were paying 40% or more of their paycheck to cover their housing costs.
Expensive housing in Canada has been a growing problem, exacerbated by the impacts of the COVID-19 pandemic on the construction industry. The Canadian Government has promised action, with the first chapter of the 2024 Federal Budget addressing housing affordability.
It announced a plan to build more homes, make it easier to rent or buy a home, and efforts to provide more affordable homes for those facing homelessness, stating, “At the heart of our plan is a commitment that no hard-working Canadian should spend more than 30 per cent of their income on housing costs.”3
Of course, it remains to be seen just how long it will take to achieve this plan. In the meantime, Canadian households are reeling as housing costs chew up a significant portion of their income.
Greece had the second highest number of households feeling the squeeze due to housing costs, with 40.7% of households spending more than 40% of their income on housing.
The Greek islands and mainland are in a unique position when it comes to housing. While prices for goods and housing are more affordable in Greece in comparison to other countries we examined, the Mediterranean nation is a booming tourist hotspot, and has seen a wide influx of immigrants in recent years.
This has meant there is a lot of demand for housing in a nation with little housing stock, especially since so many houses are used as temporary holiday homes for tourists.4
The mix of tourism, a high percentage of short-term rentals and surge in immigration has seen housing in Greece become increasingly unaffordable for locals, with delegates from Greece joining a roundtable EU discussion to strategise a housing plan to address the issue.5
Australia is the third-highest country in terms of housing cost burden, with 28.3% of people spending more than 40% of their income on housing, according to OECD figures.
Much of the conversation around housing in Australia focuses on the unaffordability and housing crisis facing many, with all households affected, no matter their income.
There are numerous factors that have led to Australia’s current housing crisis, some recent, others stretching back decades. The COVID-19 pandemic greatly impacted construction times and increased material and labour costs. After a few years of lockdown, migration levels have increased, and the demand for housing far outstrips supply.6
Additionally, previous federal governments sold a large amount of social housing in the late 50s and the 60s to increase rates of home ownership. While that worked at the time, the price of houses has increased significantly, outstripping wage growth. It’s also meant that there are large queues for very little social housing, exacerbating the problem for those in need.7
In 2023, the Australian Government promised billions to invest in social and affordable housing over the next 10 years to reform the sector, increasing the rate of new builds and ensuring housing options for women and children facing domestic violence and others facing homelessness.8
But big housing projects take time, and the burden of housing costs in Australia remains one of the worst in the world.
The country with the lowest percentage of overburdened households was Slovenia, with 4.1% paying more than 40% of their income on housing.
However, this doesn’t necessarily mean that housing is easy to get. From 2015 to 2021, the number of Slovenian households has grown by almost 40,000, while only 23,000 new homes were constructed in the same period. There are 410 dwellings per 1,000 people, and the lack of housing supply has seen demand – and prices – increase.9
To help address this, the Slovenian Government has focused on building 5,000 new homes and purchase and renovating an additional 2,000 private dwellings to increase the supply of affordable public housing for rent. Announced in 2023, the plan is due to be completed by 2026.10 It’s an ambitious target, but it can help Slovenia maintain its position as one of the least overburdened countries when it comes to housing costs.
Estonia had the second lowest percentage of overburdened households at 4.9%, with most households less likely to face housing cost stress.
The key factor behind this is that Estonian house prices have increased very slowly between 2010 and 2020. In this decade, house prices rose at a very stable rate. The pandemic saw this spike in 2021 and 2022, but house price rises had fallen to pre-pandemic levels in 2023.11
Another contributing factor is that the Estonian Government has helped fund high-quality, affordable housing in conjunction with local municipalities between 2017 and 2019 to increase housing affordability, especially for the disadvantaged.12
However, as prices continue to rise, especially in the busier, more expensive urban areas, Estonians were reported to be feeling more anxious about their financial situation than their Baltic neighbours, according to Swedbank Macro Research.13
Just 5.0% of households in Portugal are paying more than 40% of their income to pay for housing, which is the third-lowest proportion in the list of 28 countries studied.
While this is the average across the country, the capital of Lisbon has seen significant price rises. Between 2012 and 2022, Lisbon house prices increased by 120%.14 Furthermore, interest rates have also spiked in recent years after staying quite low for some time, which impacts affordability.15
Since 2021, the city of Lisbon has been working to improve housing affordability by building and renovating thousands of properties to rent to low- and middle-income families, as well as providing subsidies to low-income households who pay more than 30% of their income in rent. The World Economic Forum praised Lisbon’s strategy as a ‘global example of best practice’.14
Looking at the list of 28 countries, North American and Oceanic nations had higher populations dealing with expensive housing costs than most European nations. Canada took out the top spot, while the United States was the sixth-highest.
Australia had the third-highest number of overburdened households, while New Zealand was fifth.
A key reason why most European countries have less overburdened households than North America and Oceanic countries is the investment in public and affordable housing. In Europe, there has been greater emphasis on social and public housing, for a much longer time than in other parts of the world, as noted by the Urban Institute.16
The table below shows the percentage of overburdened households in all 28 countries.
| Country | Percentage of households spending 40%+ of their income on housing |
| Canada | 42.0% |
| Greece | 40.7% |
| Australia* | 28.3% |
| United Kingdom | 23.2% |
| New Zealand | 22.5% |
| United States | 20.0% |
| Luxembourg | 15.2% |
| Denmark | 14.7% |
| Hungary/Iceland | 12.8% |
| Switzerland | 12.0% |
| Germany | 11.8% |
| Belgium | 10.4% |
| Netherlands | 10.0% |
| Latvia | 9.6% |
| Spain | 9.2% |
| Sweden | 9.1% |
| Slovakia | 9.0% |
| Ireland | 8.2% |
| Austria | 8.0% |
| Czechia | 6.9% |
| Italy | 6.6% |
| Poland | 5.6% |
| Finland/France | 5.1% |
| Portugal | 5.0% |
| Estonia | 4.9% |
| Slovenia | 4.1% |
* The figure for Australia is based on low-income households, rather than all households.
The Australian figure in the table above is based on low-income households, meaning 28.3% of those earning less are having to pay over 40% of their income on having a home. But what about Australia as a whole?
While the OECD provided the figure in the above table, the Australian Institute of Health and Welfare (AIHW) figures cover different segments of the population. AIHW data shows that 10.5% of households are spending 30% to 50% of their paycheck on housing, with an additional 5.7% of households spending more than half their income on housing costs.17
No matter what data source, it’s clear that housing costs in Australia are having an enormous impact on people’s finances, and that many households are being overburdened by home expenses.
For those who have a home loan but are getting worried about being able to afford it, Compare the Market’s General Manager of Money, Stephen Zeller, notes there are ways to take action that can make a difference.
“Here in Australia, banks have financial hardship programs to try and help borrowers who are having difficulty affording their home loan repayments,” Mr Zeller said.
“A borrower experiencing hardship should consider speaking with their bank to see what options are available to them under the bank’s hardship program. Banks have a range of options, such as deferring repayments, pausing fees temporarily, and moving to interest only payments for a set time.”
Beyond contacting a bank to inform them you require financial assistance, comparing and switching home loans to a better deal can also help ease the strain from housing costs, Mr Zeller explains.
“The difference in interest rates between loans may seem small, but depending on the value of the loan and the period of the mortgage, it could save you thousands, perhaps even tens of thousands, over the course of the loan.
“Even just a few decimal points of difference can have a huge impact. Beyond that, you might find a mortgage with fewer fees, or with other facilities like an offset account that could suit your financial needs better and help reduce costs too. Comparing home loans is an important step not just for prospective home buyers, but for people with an existing mortgage looking for a better deal.”
Table sources: