Statistics Damn Statistics

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We often hear young people complain about how expensive property is to buy today. They often blame the Baby Boomer generation for pushing the prices up. I often hear them say that it was a lot more affordable 30 years ago. Or that it was a lot easier 30 or more years ago as things were so much cheaper.

 

However as a Baby Boomer myself I have always recalled how expensive real estate was even when I was very young. How unaffordable it was. Sound familiar?  So let’s have a look at the facts rather than listen to feelings.

 

Three decades ago the average full-time worker took home just under $19,000* per year in a time when the average house price was less than $150,000*. That’s 7.89 times one’s salary.

* Reference “BUDGET DIRECT wrote on the 4th September 2015 “ How Australian Housing Has Changed Over the Years”

* “….Back in 1984, the average full time employee brought home around $19,000 a year, and the average house cost under $150,000. Today, our earnings average over $73,000 annually, while median house prices have skyrocketed to over $520,000 in most capital cities….”

* Source ABS, Stapleton below

Statistics ABS

 

Today annual earnings exceed $77,168** with the average house price in most capital cities exceeding $604,700**. That’s 7.83 times one’s salary. Reference “Australian Bureau of Statistics.

**ABS quotes mean house price of $604,700. June 2015 http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

**ABS quotes adult average weekly earnings of $1,484.50 or $77,168 May 2015  http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0/

 

So if you believe the facts quoted above (and you may not), prices today are about the same as prices 30 years ago, relative to wages and we also have the lowest interest rates that I can recall in my lifetime. In the 80’s the interest rate went up to 22%pa compared to 5.2%pa today. The long term average interest rate is at 7%pa so really, with such low interest rates housing should be more affordable today but that’s easy to say and harder to do. It always feels extremely expensive no matter what era you find yourself growing up in.

 

My daughter is currently 25 years old and she saved enough money working a casual job whilst at school and Uni and together with the first home owners grant and stamp duty concessions she bought a Unit in Neutral Bay for $395,000 when she was 19 years of age. Over the last 6 years she continued to pay down some of her loan on the property and today its neutrally geared and she no longer needs to contribute financially to it. It simply funds itself and the property grows annually. Recently it was valued at $620,000. Admittedly I had a word to the Bank Manager about her character when she was 19 but he assessed her loan application using normal loan conditions.

I am extremely proud of her. She wanted to buy a property by the time she was 19. She focussed on saving a deposit, she worked hard, was frugal and diligent and sacrificed holidays and parties and clothes to get a deposit together.

She did not make excuses nor blame anybody else for how difficult it was.

 

The idea is to do whatever it takes to get into the property market as soon as you can and for most young people it’s asking mum & dad to help with borrowing the deposit but make sure you are able to make the repayments and over time as the rents go up and you are able to pay down some of the loan, it will simply pay for itself.

 

However be prepared. When you are old, many years from today, it also will feel much more expensive to the younger generation of tomorrow.

 

Ed Chan

Founder & Non Executive Chairman Chan & Naylor Accountants www.chan-naylor.com.au

Ed Chan

Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

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