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How To Define Housing Affordability?

How To Define Housing Affordability?
January 16, 2024 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

The price of a standard house has increased from approximately $1,000 to very close to $1 million over the last 100-years. For those who claim that ‘homeownership is harder now’, this report illustrates it has always been difficult.

It is unrealistic to expect that homeownership will ever be ‘easy’.

But, throughout the entire last 70-years, 7 out of 10 existing Australian households have demonstrated it is possible.

More than a century of evidence proves that, if the ‘will’ is strong enough, Australians always find a way.


120-years of bemoaning

No matter which generation one came from, every era contained commentary regarding ‘housing affordability’.

Having personally studied Australian real estate history, I have rustled up a collection of headlines from past eras.


Pre-war era (1900 – 1945)

Multiple generations living under the same roof, and 1 in every 2 households renting their home is a compelling portrayal of homeownership difficulties.

Men were the sole income-earners, usually working 6-day weeks and up to 12-hour days.

Buying an established home was most uncommon.

When this newspaper story was published in 1904, the ‘norm’ for homeownership was a staged process which typically began with the purchase of a block of land for (say) $80.

Funding the land was typically a private contract, direct with the land developer. Standard terms included a 10 percent cash deposit followed by instalments over 2 or 3 years.

Once the land was fully paid for, banks and building societies would consider home loan applications on the basis that the real estate owner had equity of between 30 and 50 percent.

Maximum loan terms of 7 to 10 years meant repayments were high.


Post-war era

Homeownership was actively encouraged directly after the completion of World War 2 in 1945.

Progressively, more women entered the workforce, although a very high portion of households still depended on one income, and they often had 3 to 5 children to feed.

The biggest challenge for homeowners was raising a (minimum) 20 to 25 percent deposit.

Mortgage insurance did not exist, and a standard loan term was 25-years.

House prices more than doubled during the 1940s. The cost of a basic 3-bedroom brick house in Sydney reached $4,800 in 1950.

There were public cries of housing being ‘unaffordable’ and suggestions that people were better off renting.

As with every generation, a segment of society chose to complain about ‘spiralling house prices’, but most Australians chose to focus on what they could control.

Homeownership rates improved from 55 percent of households directly after WW2 to 70 percent by 1960.


The 1970’s and 1980’s

House values continued to increase at a fast clip, such that the combined capital city average price in 1970 was circa $13,000.

Back then, housing affordability challenges included the inflation rate being above 6 percent for the entire 2-decades (and often above 10 percent).

Home loan interest rates hovered between 10 and 15 percent.

This particular 20-year block produced the highest ever rates of capital growth.

With a typical house in an Australian capital city increasing 6-times during the 1970’s and 1980’s era, one could imagine the level of ‘housing affordability’ bemoaning.

Nonetheless, the national homeownership rate held firm at 7 out of 10 households, one of the best in the world.

During the 1970’s and 1980’s, the frequency of Australians moving home to meet their own changing needs increased. Higher ambitions and improved transport options made living in the same dwelling for almost all of one’s adult life a thing of the past.

The increasing cost of stamp duty over the decades has, unfortunately, become a government-inflicted barrier for households to overcome.

As each year goes by, this barrier gets higher and higher for all categories of buyers, not just first home buyers.


The 1990’s

Bank privatisation and credit innovation during the 1990’s played a very important role in the purchase of real estate.

A standard 3-bedroom house in most major Australian townships cost between $80,000 and $120,000.

This newspaper story from 1994 (30-years ago) is more proof that the ‘housing affordability’ debate is an evergreen topic – one of 8 constants across the last 8 decades.

The 2020’s

The rate of capital growth over the 20-years ending 2020 was less than the two previous blocks of 20-years.

That said, house prices tripled (or more) in 144 townships.

When the international border closed at the very start of this current decade, the combined Australian capital city house value was $760,000. 4-years later, it was $960,000.

And several decades of evidence suggests house prices will (at least) triple in value over the next 20-years. It would be foolish for anyone to anticipate anything less than that to occur.


Different horse for different courses

The diverse range of Australian house values within capital cities currently ranges from $580,000 in Darwin to $1.4 million in Sydney.

And it is still possible to pay less than $500,000 in dozens of Australia’s 400 regional townships.

Housing affordability is considerably more complicated than the median house price.

Comparing the growth rate of median house values with wage growth is far too simplistic. This ranks among the Top 4 silliest statements that people make about property markets.

A variety of different dwelling types is available in every city or town, and at a wide range of price points.

For example, within Australia’s third largest city, the median price for a detached house in the outer-Brisbane suburb of Beenleigh is an affordable $550,000, a 2-bedroom apartment in Bowen Hills (just 2-kilometres from the CBD) is $410,000 and a standard house in Ascot, one of Brisbane’s most luxurious suburbs, is $2.5 million.

The current median price in Tasmania’s capital city ranges from $450,000 for a house in the outer-Hobart suburb of Bridgewater, to $475,000 for a basic inner-city apartment in New Town, or $2.2 million for a Battery Point house.

Proof that the size of the city is not related to the price of real estate, Perth WA has a median house value of $690,000 and a population of 2.1 million, whereas a basic house in the regional townships of Hahndorf SA (population 3,500) and Bowral NSW (11,000 people) costs $900,000 and $1.5 million, respectively.

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When the net is cast right across Australia, many cities of significant substance in different states still have sub $600,000 median house values.

They include Toowoomba QLD (Australia’s 14th largest city, $550,000), Bendigo VIC (19th largest, $550,000), the border city of Albury-Wodonga (24th largest, $570,000), Launceston TAS (34th largest, $560,000) and Mandurah WA (26th largest, $530,000).


Rise above it

The first step on to the property ladder has always been the hardest.

Once in the market, growth in (both) one’s household income and real estate equity will support future property upgrades.

Consider your strategy.

While acknowledging it won’t suit everyone, relocating to a more affordable part of Australia is an option.

For people who choose to remain living in one of Australia’s most expensive cities, RentVesting is a very attractive strategy.

During 2023-24, Propertyology’s buyer’s agent team typically pays between $550,000 and $700,000 for a low maintenance, detached house in a location strategically chosen for capital growth potential.

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Other strategies include Family Equity loans, shared equity schemes and ‘The Bank of Mum-and-Dad.’

Every human has challenges, and every human also has choices.

Choices of the career path one chooses, how hard one chooses to work, the partner one chooses, and the individual city / town that one chooses to live in at different stages of their life.

Everyone also chooses their own attitude. The choice to be financially disciplined versus spending on creature comforts.

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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