We need to talk about the disadvantage of the Australian housing market, particularly for those trying to get into it now, and those we will leave it to.
There’s a massive generational disadvantage, and it’s not good enough.
When my husband and I bought our first house, the cost of it was about even to our combined household income. Sure it was a massive fixer-upper, and we did a lot of work to it, but it was still reasonably affordable because it was in line with what we were making. Now the house we live in, even though it’s in a pretty small rural town, is probably worth 6-7 times our combined yearly income.
This might not surprise you that much, after all the cost of housing has increased in recent decades, but it’s gone way too far, and it’s time that we drew more attention to it. We recently saw some numbers from comparison website RateCity on how much a single person would have to earn a year in order to buy a house in Australia’s capital cities. Believe me when I say, it wasn’t pretty.
These numbers were calculated using ABS home price data and are based on the concept of month repayments of a loan of 80%. The monthly household income has been calculated based on the common belief that people shouldn’t be paying more than 30% of their income on housing.
In Sydney, the average house costs around $825,000. On a loan of about $660,000 (and people would likely need more than that), the monthly repayment for someone single would be almost $3,500, which means a household income of almost $11,500 per month, or about $137,500 per year.
In Melbourne, Canberra, Darwin, Perth and Brisbane, the numbers are not much better. In fact, only Adelaide and Hobart were considered affordable enough for a single person to purchase a median-priced house on an average Australian wage.
So What Am I Worried About?
When I talk to people of my age about their experience in the housing market, most of them had a similar experience to me. They purchased a house when the cost of it was about 2-3 times their annual income as a couple (depending on the area) and then held onto it until it was time to sell, at which point they made their money back, and then some.
The problem is, my sons will likely never have the opportunity to do that, and it worries me.
At the moment, my boys are still children, but we all know how fast they grow up. One day, in the not too distant future, they’ll be looking to have this thing we call the ‘Australian Dream’, only to realise they’ve been shortchanged. Unless the entire housing market crashes, as it seems to be constantly threatening to do, there’s no telling how expensive housing will be. I wonder if my boys will ever experience owning their own home. Or will they have to settle for what they can afford within their means, which based on these numbers won’t get them very far at all.
And my kids aren’t alone. This is an issue being acutely felt by young Australians right now. They’re trying and balance higher costs of everything from housing to living with annual wages that absolutely haven’t increased at the same rate. Add onto that the increasing number of young Aussies also paying off HECS debt due to university no longer being free, with the potential for fees to be deregulated in the coming years.
It’s not exactly a bright and promising future for our young people.
What’s the solution? Sadly, I don’t think there is one. It doesn’t look like my boys are ever going to be able to embark on the dream of home ownership unless we manage to be financially stable enough in our retirement to keep our home and leave it to them. If we don’t, they’ll be stuck in a mortgage they’ll never afford, or be renting for life.
So, if this is the reality for our kids, maybe we should stop selling home ownership as the Australian dream.