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Housing Affordability – Why Your Parents Could Afford To Buy a House At Your Age

Housing Affordability

The great Australian dream is to buy property. It’s a dream more prevalent in Australia than in any other developed country. Yet, when house prices go up faster than the average income, it can soon turn into a problematic nightmare for those wanting the white picket fence attained by their parents at an early age.

In this blog, we unpack how times have changed, drawing a parallel between the affordability of housing today and ‘back in the day’. We’ll then explore how discipline and patience can help make property purchases a reality.

Crunching The Numbers

To take things back to the ‘good old days’, a Bulletin Report from the Reserve Bank of Australia displayed that in 1981/82, Australia had a post-tax household median dwelling price of around $48,000. Not so bad, right?

This was in relation to a median household income of around $15,000 – meaning the much-discussed median income to median house price ratio was around 3. By the midway point of 2001, that ratio figure had risen to 4.5 nationally, and now, after a leap of around 2 points over the pandemic period, it sits around 8.5 according to the latest CoreLogic Housing Affordability Report.

These figures are Australia-wide, meaning that capital city ratios are sitting around 9.9. Its effect? Almost three and a half times the difficulty of buying a home today as it was ‘back in the day’. As an increasingly attractive alternative, those earning the median capital city income have the opportunity to invest with a more realistic ratio closer to 6, if they are to invest in a median regional home.

How We Stack Up Internationally

We are meant to be ‘the lucky country’, right? Are things much worse overseas? When looking specifically at Melbourne, Demographia’s annual International Housing Affordability study for September 2022 found Melbourne to be the 8th highest household income to median house price ratio globally – at an incredible rate of 9.9.

The figures can be broken down to numbers found via the Australian Bureau of Statistics – that record a Victorian household’s average annual income of $91,468 in 2021, compared to the $903,000 median Melbourne house price for January 2023 as sourced through PropTrack.

The Demographia report found that all Australian major housing markets, including Melbourne, ‘have been severely unaffordable since the early 2000s’. Demographia principal and report author, Wendell Cox, attributed strict land use regulations – including the Urban Growth Boundary – as contributing factors to the housing crisis. Melbourne’s astonishing 9.9 ratio figure was deemed more unaffordable than New York, Greater London and Singapore, while Hong Kong was deemed the least affordable global city with a ratio of 18.8.

Modern Expectations

housing affordability australia

Greater accommodation expectations are key determinants influencing housing unaffordability in the current day. Our parents and loved ones buying homes back in the good old 20th century would often buy two or three-bedroom homes, predominantly with just one bathroom. Families of all sizes would ‘make do’ with whatever space they had. In the 1950s, the average size home in Melbourne was 100 square metres (11 squares) with plenty of land for the kids to play out the back (usually on blocks of 800 square metres).

Today, the average Australian home is around 186 square metres (20 squares), with new homes being built averaging around 240 square metres (25.7 squares) but on smaller land (now averaging 432 square metres) so many expect the housing dream to come in the form of four bedrooms, multiple bathrooms including an ensuite to the main bedroom and well-equipped entertaining spaces. Where the Great Australian Dream is concerned, it could be argued that a misalignment of expectations and reality is at play.

The Ugly Truth

To further delve into the reality for buyers within Melbourne, modelling from Domain’s First Home Buyer Report from March 2023 found that a couple on an average wage would be required to pay 42.1 per cent of their combined income to repay a loan on an entry-level home of $660,000.

Homeowners paying over 30 per cent of their total income on repayments are classified as under mortgage stress, so these figures are far in excess of mortgage stress. These findings are a sign that banks are likely to give less to would-be property owners when it comes to lending time, as they would be considered a higher risk.

A 2023 survey conducted by Resolve Strategic found that 72 per cent of respondents between the ages of 18 and 34 believed they will never be able to buy a house themselves.

The Future Reality

In property terms, buying today is always a better idea than buying tomorrow. It’s difficult to time the market and if you go into the process of buying property, you should always anticipate that the prices will go up. This may feel daunting now, but once you’re in the property market, your property will be creating equity as you sleep. If you are in a position to buy now, a loan or ‘gift’ from the Bank of Mum and Dad, guarantor loans, and first-home buyer schemes will go a long way when it comes time to secure a property.

Be Patient and Disciplined

Buying your first home takes time and effort. Most first-home buyers with a savings partner take two to three years to save for their first property deposit, sacrificing lifestyle expenses along the way. Know that realistically your dream home will not be your very first home. It may be your second, third or even fourth home.

And if you’re inclined to buy an investment property first, your dream home could be created from the proceeds of your portfolio (only two to three investments could set you up in time). Start small, just like your parents did all those years ago. If you’re patient, disciplined and practical, you too can attain your dream home.

To learn more about housing affordability and explore your real estate options, Contact Besser + Co today.

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