The average income, if I recall from previous posts on mum and dad investors, is $80000
The average wage is around $67000, can't be bothered looking it up.
I think it is a broad assumption to assume it was originally intended as a flat figure against all income ranges. When clearly pointed out in this thread that makes it pointless. Comparing against the average income would apply more relevance to the 30% figure.
Let me ask some questions:
Does the 30% adjust when tax rates change?
Does the 30% adjust if one household has no children whilst the other household has 5 children?
How do things like disability and special needs affect the 30%
Do you see the problem. It's like saying that the average Australian male takes a size 9 shoe, and then issuing everyone with a size 9 shoe. Yes some men will be quite happy with a good fit, but the majority will just get sore feet because it doesn't fit.
The 30% stems from a lending criteria and serviceability calculation used in the pre excel period when lenders calculated 30% of borrowers income as a starting point for capacity to service, and then adjusted up or down depending on individual circumstances.
The use of Excel blew all of that away because that gave the banks the tools to accurately measure individual borrowers circumstances. It's like comparing someone at the back of a boat measuring the depth of the river with a rope with knots tied in it at each mark, to someone using sonar to map the bottom of the river. One measure is crude and one is accurate.
Any expressed market opinion is my own and is not to be taken as financial advice
Does the 30% adjust if one household has no children whilst the other household has 5 children?
How do things like disability and special needs affect the 30%
Do you see the problem. It's like saying that the average Australian male takes a size 9 shoe, and then issuing everyone with a size 9 shoe. Yes some men will be quite happy with a good fit, but the majority will just get sore feet because it doesn't fit.
The 30% stems from a lending criteria and serviceability calculation used in the pre excel period when lenders calculated 30% of borrowers income as a starting point for capacity to service, and then adjusted up or down depending on individual circumstances.
The use of Excel blew all of that away because that gave the banks the tools to accurately measure individual borrowers circumstances. It's like comparing someone at the back of a boat measuring the depth of the river with a rope with knots tied in it at each mark, to someone using sonar to map the bottom of the river. One measure is crude and one is accurate.
Do you mean tax change by bracket creep? If so when dealing with average incomes, the figure is too far away from meaningful impact from that.
It certainly would have to be adjusted up or down depending on dependants.
I certainly see the problem.. In fact I am using the same argument in the relevance of real estate "averages" in another thread.
The variable across a range of scenarios is too great.
30% if average income household with 1.7 kids.. no one has 1.7 kids...
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Do you mean tax change by bracket creep? If so when dealing with average incomes, the figure is too far away from meaningful impact from that.
It certainly would have to be adjusted up or down depending on dependants.
I certainly see the problem.. In fact I am using the same argument in the relevance of real estate "averages" in another thread.
The variable across a range of scenarios is too great.
30% if average income household with 1.7 kids.. no one has 1.7 kids...
There are too many variations between households. What if one household is paying 31% of their income for the mortgage but have no other debts and no children, but the household next door is only paying 28% of the income on the mortgage, but have 3 maxed out credit cards, a car loan, three children, and are behind in their electricity bill - which household is under stress?
When GST was introduced the net disposable income after tax rose because tax rates fell, but additional tax was paid on all purchases, so did the 30% level adjust for that? Nope.
At an individual level, the 30% level doesn't mean much. I'm not sure who uses this measure seriously. Perhaps it gives a way of measuring changes in debt servicing levels at a macro level, but there is a strong element of bullshit about it, especially when it's used to compare us to other nations that have quite different tax regimes and living costs.
Any expressed market opinion is my own and is not to be taken as financial advice
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