22 Dec 2017

Housing affordability - Is the great Australian dream becoming a nightmare?

The cost of housing is a hot topic that frequently comes up at any family barbecue or social gatherings. Big price increases in buying a home is why some people are forced into renting, which puts pressure on rental prices as well.

So, what’s behind the conversation? House prices across the nation have soared over the past 40 years, and they have done so on a different scale to wage growth. To really put this into perspective, let’s look at some historical comparisons. Obviously, house prices can differ widely, as is evident when comparing the markets in Sydney and the Sunshine Coast. So, bearing in mind that I’m an agent not a statistician, I’ll use my own example of some of my own property purchases.

When I was growing up, most households had a single income and if the wife worked it was usually part-time. And yet, families managed to buy a home – most of them owning it outright by the time they retired.

 

WHAT’S CHANGED?

The sad truth is that’s just not possible for the average Aussie family in today’s economy. This boils down to the fact that property prices and the cost of living have increased dramatically, yet wage growth has been slow.

So here is my personal home ownership experience:

  • In 1983 we bought our first house for $36,000 - which was roughly 2 times the average annual income at that time.  
  • In 1992 our next house cost $159,000 – about 5.5 times the average annual income at that time.
  • In 2007 we purchased an investment property for $345,000 - 6.8 times the average annual income.
  • In 2017 the average property price on the Sunshine Coast is $550,000 – which is about – 7.3 times the current average wage.*

If you think we have it bad here on the Sunshine Coast, spare a thought for Sydney where in 1975 the average house price was $28,000 compared to $850,000 in 2015 – and its only got worse. Earnings have gone up tenfold (x10) whereas property prices have gone up thirty-fold (x30) in the same period.

As a result of the price and serviceability pressure, two things are happening:

  1. Home ownership has declined 10% over the past 25 years. Those paying off mortgages have decreased 0.4% from 2011, and renters have increased by more than 1.5% since 2011.
  2. There is a movement for both buyers and renters to seek out more affordable options in less central locations.

This was a significant factor for us in choosing the location of our new office in Nambour, and our own recent decision to move from down on the Coast to Palmwoods. We knew it was an emerging market.

Of course, it helps that the railway towns of Yandina, Nambour, Woombye and Palmwoods etc. are absolutely beautiful, friendly and desirable living locations, but affordability is also a genuine factor in their appeal. The western suburbs of Brisbane, Sydney and Melbourne have experienced a similar migration.

 

HAVE OUR TASTES CHANGED?

It has to be said though, that our taste in houses has changed over the years – not just our own, but nationally.

We are building much bigger, high-end homes today compared to the modest homes of earlier generations. How many kids share a bedroom these days? And did you grow up in a house with multiple living areas, 2 bathrooms and a kitchen with stone benches or air conditioning? I certainly didn’t, but my kids did, and now they have kids and their homes are bigger again.

So yes, housing affordability is slipping away for some of us. Is that partly due to our champagne taste on a beer budget? Well, that’s another blog.

What’s the solution? Well I guess learning to be frugal and eliminating excessive consumer spending helps, as does living in a more affordable area or buying a home which has the potential for you to make some money, either through renovations, splitting a block, or adding a granny flat.

 

WHERE TO FROM HERE?

It’s an interesting dynamic that household sizes are set to decrease over the next few decades, as the baby boomers peak as the largest population demographic. It will be interesting to see how housing evolves to match the housing requirements over time.

In 1911, the average household was 4.5 people. In 2016 it was 2.6, and it’s tipped to be 2.2 people per household by 2021.

I can’t help but wonder if buying that big four or five-bedroom home is such a good idea (insert) when the time comes to sell in the future?

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Note: In the last census, the average Australian income for men was $80,000 and women $70,000, so let’s split it and say the average income was $75,000. It is also agreed that spending greater than 30% of your income on housing costs holds a strong likelihood of resulting in mortgage or rent distress.

https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/HousingAffordability

 

 


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