Which generation has had it easier in the property market?
The Baby Boomers, who have generated about a third of house price growth over the past 40 years?
Or Generation Y, which has the bonus of first home buyer grants and flexible house and land packages?
In 1978, when a Baby Boomer aged 60 would have been 25, the median house price in Brisbane was $29,500.
Since then, the median house price has increased to $515,000.
LandMark White Research has compiled raw figures comparing the property market in 1978 to the market in 2012.
In 1978, the average annual wage was $10,869. In 2012, the average annual wage was $69,992. In 1978, the Baby Boomer couples were putting 22 per cent of their (usually just one) wage towards a mortgage. In 2012, Generation Y couples were parting with 56 per cent of their (usually two) incomes to service a mortgage.
As a general rule of thumb, banks will not loan to potential home buyers if more than 35 per cent of their wage will be swallowed by mortgage repayments, therefore pricing many Gen Ys out of the market.
That's based on the raw figures alone.
The property market has undoubtedly changed in the past 35 years. Supply was not an issue in the 1970s. Now, delays due to land rezoning and project approvals are limiting land supply and keeping the flow of new housing stock low. Migration patterns have changed, as has where and how the population wants to live.
The differences are numerous and varied; lending patterns and criteria, borrowing capacities, inflation rates, the cost of living, and government incentives have changed.
Property analyst Michael Matusik said the comparison could not be made without looking at cost factors outside the property realm.
"Today, people generally rely on two incomes to service a loan. Back in 1978, only full-time male earnings were considered.
"Also, you needed a 30 per cent deposit back in 1978. Today some banks are back to asking for just 5 per cent.
"And contrary to popular belief, transport costs then were higher than today. Public transport was more expensive and cars were less fuel-efficient."
However, Mr Matusik said property "affordability isn't that much different".
The figures provided show that in 1978 a Brisbane house was 2.7x income, today it is 7.35x income. Did nothing to convince them that my parents generation had it much easier in terms of housing affordability. No point debating it further, I think it's obvious, but obviously they don't think so.
The figures provided show that in 1978 a Brisbane house was 2.7x income, today it is 7.35x income. Did nothing to convince them that my parents generation had it much easier in terms of housing affordability. No point debating it further, I think it's obvious, but obviously they don't think so.
And yet, from the OP article:
Quote:
Property analyst Michael Matusik said the comparison could not be made without looking at cost factors outside the property realm.
....
However, Mr Matusik said property "affordability isn't that much different".
For Aussie property bears, "denial", is not just a long river in North Africa.....
The figures provided show that in 1978 a Brisbane house was 2.7x income, today it is 7.35x income. Did nothing to convince them that my parents generation had it much easier in terms of housing affordability. No point debating it further, I think it's obvious, but obviously they don't think so.
You're assuming that all other lifestyle costs are the same in real terms. They're not. That's actually one of the major reasons for the big increase.
Matusik is an industry mouthpiece. Like I said though Sydneyite, not worth debating, I think the numbers speak for themselves, i.e. houses are 2.5x more expensive relative to incomes today, but obviously you disagree.
stinkbug
22 Aug 2013, 03:57 PM
You're assuming that all other lifestyle costs are the same in real terms. They're not. That's actually one of the major reasons for the big increase.
Some things were relatively more expensive then. However my parents had free university whereas I had a $30+k HECS debt taken out of my income for the next 7 years. I think food was cheaper in relative terms back then. Admittedly cars are relatively cheaper now, and obviously computers, TVs etc are relatively cheaper. However my pairs didn't even buy a computer until I was 9 (pretty standard back then) so that was actually one less cost for them. Cars are more fuel efficient now but without looking at the data I would guess fuel is relatively more expensive now.
I still think it's a ridiculous argument to make that overall it is the same now, house prices are 2.5x more expensive relative to incomes, and wage inflation is much lower now. But I know from experience arguing this point on this site hits a brick wall of boomers/older gen x/industry mouthpieces so not going to bother.
The figures provided show that in 1978 a Brisbane house was 2.7x income, today it is 7.35x income. Did nothing to convince them that my parents generation had it much easier in terms of housing affordability. No point debating it further, I think it's obvious, but obviously they don't think so.
That's because you are threatening a key article of the bull narrative: the notion that it is harder to attain homeownership now then it was in the past.
You will hear the following to refute what your contention:
1. Gen Ys are lazy and not willing to sacrifice 2. Payments on mortgages are roughly the same so affordability must be the same too. 3. interest rates were higher back then. 4. People lived in shacks, now people feel entitled to a higher standard of dwelling that they deserve as FTBs. 5. Banks wouldn't lend to women/women weren't in the workforce to the same degree as they are now ( although it is never explained by how much prices should rise in response to that development) 6. there are probably a few more, that's just off the top of my head.
Naturally, the sharp rise in speculative investment in the housing market in the face of an insipid supply response is ignored or overlooked. Neither is the fact that out tax code encourages property speculation. That doesn't matter you see.
Anyway, good luck getting any of them to deviate from the script.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
That's because you are threatening a key article of the bull narrative: the notion that it is harder to attain homeownership now then it was in the past.
You will hear the following to refute what your contention:
1. Gen Ys are lazy and not willing to sacrifice 2. Payments on mortgages are roughly the same so affordability must be the same too. 3. interest rates were higher back then. 4. People lived in shacks, now people feel entitled to a higher standard of dwelling that they deserve as FTBs. 5. Banks wouldn't lend to women/women weren't in the workforce to the same degree as they are now ( although it is never explained by how much prices should rise in response to that development) 6. there are probably a few more, that's just off the top of my head.
Naturally, the sharp rise in speculative investment in the housing market in the face of an insipid supply response is ignored or overlooked. Neither is the fact that out tax code encourages property speculation. That doesn't matter you see.
Anyway, good luck getting any of them to deviate from the script.
Agreed Veritas - have now heard all those arguments and then some! The only arguments they made that had any substantial merit was on interest rates. Admittedly that has had an effect on servicing costs (which I think are still higher today), what they don't like to talk about though is that the principal is still 2.5x as much today! Also wage inflation being much higher back then quickly inflated away their relatively much smaller mortgages.
Agreed though there will be no deviation from the script. Not today anyway.
Matusik is an industry mouthpiece. Like I said though Sydneyite, not worth debating, I think the numbers speak for themselves, i.e. houses are 2.5x more expensive relative to incomes today, but obviously you disagree. Some things were relatively more expensive then. However my parents had free university whereas I had a $30+k HECS debt taken out of my income for the next 7 years. I think food was cheaper in relative terms back then. Admittedly cars are relatively cheaper now, and obviously computers, TVs etc are relatively cheaper. However my pairs didn't even buy a computer until I was 9 (pretty standard back then) so that was actually one less cost for them. Cars are more fuel efficient now but without looking at the data I would guess fuel is relatively more expensive now.
I still think it's a ridiculous argument to make that overall it is the same now, house prices are 2.5x more expensive relative to incomes, and wage inflation is much lower now. But I know from experience arguing this point on this site hits a brick wall of boomers/older gen x/industry mouthpieces so not going to bother.
Some stuff is more expensive now, but not much. Whitegoods, cars, travel, electronics, etc are all waaaay cheaper now. Fuel was about the same.
There are two other factors that come into play: 1) Real incomes are much higher, and 2) Interest rates are lower.
Add leverage into the equation and people have a lot more to spend on houses.
Australia's home ownership rate rose from 50% in the 1950s to 70% today, suggesting it is much easier to own a home now than it was in the past.
The home ownership rate has hovered around 70% (give or take a couple of percent) for the past five decades.
Half a million homes are bought every year, and mortgage default rates are very low. This suggests that people are able to afford homes.
Shadow you were recently shown by Veritas that the 70% figure bears no relationship to the percentage of eligible adults that own homes, so your argument is irrelevant. It is based on the number of dwellings.
In addition of that 70%, the number who own their home outright has declined significantly since 1995.
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