Posted on by Colin Twiggs

Australia: Housing affordability still poor

Interesting article by Leith van Onselen on Australian housing affordability.

Today it takes “380 weeks on the average wage (just over seven year’s income) to buy a typical house. This is down from around 430 weeks average wages (just over eight year’s income) required to buy a home in 2008 and 2010.”

Good news. But compare that to less than 250 weeks in 1995 — and less than 200 weeks in 1987.

In 1960, it took homebuyers just 7500 hours [188 weeks on the average wage] to pay off the average mortgage.

via Housing affordability improves but still poor | | MacroBusiness.

17 Replies to “Australia: Housing affordability still poor”

  1. The reason this is happening is simple. The amount of money in the system continues to grow thanks to fractional reserve, and the surplice is being concentrated in the hands of the few.To rectify this the tax code needs increase taxes on capitol gains from property trading if house held for short time.

    1. The more efficient but even more politically unpalatable alternative would be a broad based land value tax as recommended in the Henry review.

      1. Despite not comparing similar product, the historical extremes are interesting. Are there any long term smoothed averages for affordability of a typical house? I’m guessing 5 – 6 years average wage is likely. When you look at that in context of a persons typical 45 yr working life, is it really that big a deal? Not to mention during that persons working life, affordability ebbs and flows, so they will endure both the advantage of the highs and the pain of the lows.

  3. Hi Colin, with all due respect, what’s with the comment numbering on this forum? Any chance of making number 1 the first comment, number 2 the second comment, etc?

  4. There are two primary concerns here. Firstly, the average wage versus the average house cost reflects both the average house cost and the average wage. Secondly, the concept of average wage and average house cost oversimplifies reality. Strip away houses that sell for over 1 million dollars, say, and the so called average is much lower. Unfortunately, the converse of removing houses under $200,000, say, doesn’t bare mentioning. Added to which, the chance of the wage earner losing his job is a wild card that should not be ignored. In other words, house prices can appreciate in step with increasing wages but the uncertainty of earning that wage for the entire length of the mortgage may unseat the individual. In conclusion, the thought of using averages does not fully address the relationship of wage to house price ratio; rather it’s the intangibles, such as job security, good health, etc, that play a not insignificant part in the equation. Therefore, as there is no obvious relationship between wage average and average house price, the so called “free market” strives to find the balance.

    1. Thanks for your input. Both house prices and wages are not normal distributions and have fat tails on the higher side. The primary factor that causes the relationship to fluctuate is interest rates. But high ratio values for average house price to average wage should alert us when the market is over-heating.

  5. Yeah but …

    In 1960 people were happy with 3 bedrooms, 1 bathroom and a carport in a house of very modest number of square metres. These days it HAS to be 4 bedrooms, 2 bathrooms with a double lock up garage and large square metres … in WA at least. We also have air conditioners, insulation, etc, etc.

    A better comparison measure would be time to pay off per square metre.

    1. If the standard of living rises — bigger houses, 2 garages, airconditioning, etc. — then so should the average wage.

      Also, houses may be bigger but the blocks are smaller. We pay more for land than for the houses built on them.

  6. Inflation at about 3% does not account for the much higher rise in property values (or their contraction).

    Land has characteristics of a monopoly because it is fixed in supply and is needed for all production. To quote Winston Churchill “Land monopoly is not the only monopoly but it is the mother of all monopolies”.

    Through study of the land market in Britain over 300 years, British author Fred Harrison, has identified an eighteen year boom-bust land cycle with only world wars disrupting the pattern. Following an end of cycle recession, new growth starts which lasts for about seven years, with a boom in land price followed by a mid-cycle recession. Recovery launches activity in the housing market for the next seven years at a higher level of growth and in the last two years the price of land takes off in an almost vertical trend in what Harrison calls the “Winners Curse” phase when land dealers base their prices on expectations about future increases. By creating an artificial scarcity of land, the prospects for creating new jobs and sustaining output are terminated. There is a shortage of affordable sites and a shortage of affordable money with the rise in the number of non-performing loans and more severe recession follows.

    The 2008 bust would have happened anyway, it was just made worse with sub-prime and being exported globally with financial products.

    Substituting deadweight taxes like income tax for land value tax would stabilise the land market and prevent the boom bust cycle, but we know that is not going to happen.

    If the boom-bust pattern runs true to form the mid-cycle recession should be about 2017 and the next GFC about 2026.

    A short graphic presentation “The Boom Bust in Land Cycles” is on the home page at http://www.prosper.org.au

Comments are closed.