Canberra (16%), Hobart (11%), Melbourne (10%), Brisbane (7%), Adelaide (7%) and Perth (3%) over the next three years due to increased demand and limited supply.

Housing affordability is slated to improve over the next three years as unit prices fall due to a glut of apartments in Australia’s major cities, according to a new report.

Unit prices are expected to drop by 7% in Brisbane, 5% in Melbourne and 4% in Sydney, providing an opening for more first time buyers to enter the market, states QBE’s Housing Outlook 2017-20 report.

QBE Lenders’ Mortgage Insurance CEO Phil White said that the apartment sector will have a growing influence on the nation’s property market over the coming decades. Units now account for 46% of all residential construction across the country. Investor demand for units is also expected to weaken largely due to tighter lending standards, the report says.

“With so many Australians priced out of the housing market, the Australian Dream of owning property is increasingly turning to high and medium density apartments,” he said. “Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices.

“Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”

According to the report, house prices will rise in Canberra (16%), Hobart (11%), Melbourne (10%), Brisbane (7%), Adelaide (7%) and Perth (3%) over the next three years due to increased demand and limited supply. Sydney experienced 12% growth in house prices in the 2016-17 financial year, and is expected to flatten to -0.2% by 2020.

But overall, the report forecasts that Sydney, Melbourne, Adelaide, Perth and Darwin will become more affordable in the next three years, while Hobart and Canberra are expected to become less affordable. Affordability forecasts are based on mortgage repayments on 75% of the median house price as a proportion of average household disposable income.

“Recent low affordability in Sydney and Melbourne should stop purchasers from taking larger mortgages and bidding up prices even more,” he said.

With more lending restrictions impacting investors, it could be good news for owner occupiers as they should face less competition from investors, he added.

According to the report, first home buyer loans declined by less than 1% in 2016/17. However, overall signs of strengthening demand for first home buyers are emerging with 13% more loans approved to first home buyers to the three months to July 2017 compared to the prior year.

Looking further ahead, White said around 6.5 million people will need to be housed over the next 15 years.

“The forecast population growth raises questions about whether our property market will have us on track to meet short, medium and long-term population challenges,” he said. “Careful planning for housing stock and infrastructure is imperative.”

The report forecasts Sydney, Melbourne, Adelaide, Perth and Darwin to become more affordable in the next three years. Hobart and Canberra are expected to become less affordable to June 2020.

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