Sorry Mum and Dad, It’s Harder for Us to Buy a House Than It Was For You

Mums and dads continue to rattle on about how property is no harder to buy now than it was back in their day, with finance couple David and Libby Koch the latest to shout it from the rooftop.

And, sure, they make some valid points about how the modern lifestyle impedes our generation’s ability to save, with smartphones, suede shoes and trips overseas all now essential accoutrements.

But regardless of our modern day indulgences, their argument remains way out of whack. It’s much harder to hook a leg onto the property ladder now than it was in their day.

The most widely accepted way to settle this – and wide acceptance is important in settling a fiddly economic debate – is measuring house prices relative to incomes. For those playing at home, it’s a nice and easy method to understand too. So let’s look at the numbers.

For argument’s sake, let’s say your parents turned 60 last year, meaning they were 25 and trying top buy a house way back in 1979. The average house price then? Tens of thousands of dollars.

 

Sydney – $50,700

Melbourne – $38,000

Brisbane – $31,450

Adelaide – $33,750

Perth – $38,600

Hobart – $34,750

Darwin – Data N/A

Canberra – $39,000

 

At first glance you could have bought a place with your measly deposit alone, but unfortunately that’s not how it works. We need to compare those prices with wages at the time.

Checking in with the ABS, the average weekly male earnings in 1979 was $223. That compares to an average weekly adult full-time wage in 2014 of $1,454.

Now, these figures aren’t directly comparable, because back in the day they included part-timers and children in the count of “male units of earnings”. So, if anything, the average adult full-time wage in the ’70s would have been higher. But let’s not nit-pick.

Instead, let’s settle the argument by taking a quick look at today’s average capital city house prices. Here are the latest figures from the ABS.

 

Sydney – $702,000

Melbourne – $529,000

Brisbane – $465,000

Adelaide – $410,000

Perth – $555,000

Hobart – $360,000

Darwin – $580,000

Canberra – $535,000

 

Now, interest rates were pretty keen back in 1979, with the average standard variable rate rocketing along at 9.13 per cent, so servicing those mortgages would have cost more compared to the delicious 5.5 per cent we enjoy today. Income taxes were also marginally higher.

Still, when you crunch the numbers the result is too resounding to worry about financing and transaction costs. In 1979, the average Aussie house cost 170 times the average weekly wage. In 2014, it cost 356 times.

That’s a helluva lot more saving to put together a deposit (the average capital city house price is $517,000, which means that a 20 per cent deposit will set you back $103,000, not accounting for stamp duty or transaction costs), even forgoing the designer sunnies and extra phone data.

A similar bit of maths by the International Monetary Fund sings the same tune, with the IMF finding Australia to have the third highest house price-to-income ratio in the developed world.

And just to rub it in, last year’s Global Wealth Report from Credit Suisse found the median Aussie adult (here’s looking at you, mums and dads) is the richest in the world, worth a fabulous $225,000.

How did we get so rich? Property, dammit.

Image: Onasill ~ Bill Badzo ~, via Flickr