Published on August 14, 2015


Housing Affordability

The issue of housing affordability never really goes away and in a recent Newscorp article this issue has again been raised.

Formatted as a fictional discussion between a dad and his daughter, in this article the daughter proclaims that buying a house was “impossible” these days.

Housing affordability back then…

Interestingly, her father pointed out that in real terms it was actually as affordable today as in the past. He went on to say that 30 years ago a deposit on a home was equal to 15 months of a person’s salary and the annual interest on the loan required eight months of salary.

Housing affordability today…

He went on to explain that today only five months of salary is required for the deposit and the annual interest equals four months of salary.

So the conclusion was that today you actually need less of your income to pay for housing (of course these figures would be based on median house prices and average wages).

The article ends with the daughter continuing to moan about her inability to afford to get a start in the property market and then leaving to meet up with friends to plan their next trip to Bali.

Can property prices continue to rise

If property is as unaffordable as we keep hearing, then how can prices continue to rise?

The War of The Worlds

Apologies to those that have heard me (Martin Bell, not Nick Lockhart) say this before but some years ago my wife, Marion, and I flew to Sydney to see ‘The War of The Worlds’ musical.

While walking in the Homebush area we came across the Old Sydney Brick Pit and there I found a plaque saying that the average Sydney home cost £1600 in 1911 when the brick pit was running and the average wage was £200.

Housing affordability in 1911

From the above you can see that back in 1911 the cost of the average home was eight times the average annual income. So how does that compare with today?

Average incomes and home prices today

In 2015 the average capital city median house price is $553,000 and the average capital city median unit price is $426,000; with the combined average of these being $490,500.

In 2015 the average Australian wage is $58,692; making the cost of the average home today equal to 8.357 times the average annual income.

Yes, there is a slight change and it takes a little more of today’s wages to pay for a home but when you consider what’s in a home today one would be justified in thinking the difference ought to be more significant.

Homes today

Today our expectations are so much greater:

  • Bigger homes
  • Internal laundry
  • Internal bathrooms, incl. ensuite, with toilets (compared with a single ‘outhouse’ in 1911)
  • Media rooms
  • Studies
  • Separate living rooms
  • Double garages
  • Dishwasher
  • Air conditioning
  • Swimming pools
  • Etc and so on

Percentages of home ownership

Back in 1911 about 30% of people owned their own homes and 70% rented. Today that has reversed with around 70% of people homeowners and just 30% renting.

Of course the location of your home will be reflective of its current value. A one bedroom unit in Sydney may cost more than a four bedroom house in Brisbane; albeit not for much longer.

Daily Telegraph headline

An article in Sydney’s ‘Daily Telegraph’ back in June 2015 was headlined as follows:

“Mortgage repayments on a median priced house require less income today than in 1989”

Referencing BIS Shrapnel research this article showed today’s homebuyers are spending less of their income on mortgage repayments than they did the last time Sydney had a housing boom in 2004. That is, housing was actually less affordable then.

So are homes really less affordable now or are our expectations just so much higher?

Expectations and my kids

Talking with my own children (25yo and 30yo) it is very obvious that they would never be satisfied with a first home like the one I had.

I had to borrow the deposit and legal fees from my grandfather. Because I could not afford a concrete driveway, I paved one in second hand bricks. My rented TV stood on a besser block and plank shelved ‘media centre’. I could continue but will stop there as it’s making me feel really old and I’m sure you get my point anyway.

More people renting creates a demand for more rental properties

The bottom line is that if Australians cannot afford to buy the house of their dreams (or expectations) then perhaps they will be ‘locked into a life of renting’, as the newspapers suggests.  If that is so then someone has to provide all those rental properties don’t they?

Changing expectations

There are many strategic ways someone can get a foothold into the property market when it looks as though they cannot. Here’s a couple:

  • Be prepared to live in a different location where prices are cheaper
  • Be prepared to live in a basic house, going without some of the modern conveniences
  • Perhaps you need to look at a combination of both of the above two points

Another way, that’s becoming more and more appealing to Gen Y (who like the freedom to move around anyway) is to buy an investment property and let a tenant and the taxman give them the foothold into the property market while they continue to rent. As equity grows, leverage off that new equity into another property etc. Doing this while continuing to rent allows someone who as a homeowner would have been locked out, to get into the market and reap the rewards as it grows.

Can you? or... How can you?

I guess if someone approached life challenges with the question “Can I”, they will only get so far. But those who go through life asking “How can I” are the ones who find solutions to catapult themselves closer to the realisation of their dreams and goals.

At MRD we focus on getting to know you, your goals, your fears and what ‘seeds’ you have to work with. From there we assist you to develop a workable strategy and then we partner with you to see the successful implementation of that strategy.

Wherever you are right now is what we refer to as your starting point. If you want to progress forward to do more, be more and/or have more, talk with us to see what may be possible. You have nothing to lose, we don’t bite, we’re not hard sell but we have knowledge and understanding that when applied could make a significant difference in your financial circumstances.

So, Contact Us and simply add in the Comments ‘#strategy’ and we’ll be in touch to see in what ways you’d like us to assist you. You can get a headstart on the process by completing an online (secure) ‘My Starting Point’ form which, as the name implies, allows us to get a snapshot of your current position so we can look for ways to add value.

If that’s all too hard just pick up the phone and call us on 1300 883 854.

Partnering with you for your investment success,
Nick Lockhart(with the majority of the above content contributed by Martin Bell; MRD Property Strategist)