Is Australian property really unaffordable? Kevin Turner Interview Jan Somers

There’s certainly been a lot of talk lately about property affordability. In fact there some who are saying that Australia is probably one of the least affordable countries in the world.

To help put some perspective on this argument I caught up with best selling author and property expert Jan Somers for an interview for Real Estate Talk.

Here’s a transcript of the interview…

Kevin: Welcome Jan, let’s go back in time a little bit. I imagine you’ve discussed this topic on a number of occasions.

Jan: Many, many times. I’ve been in property for 40 years now, so it’s cropped up every decade.

Kevin: The debate doesn’t seem to change it, does it?

Jan: No – it doesn’t.

Kevin: Cast a bit of reality on this for us. I know that you’ve come across a letter recently. Would you be able to tell us about that?

Jan: Yes, it was a letter that I actually put a copy of in one of my earlier books called “Building Wealth Story by Story”. It was a letter written by a friend of a very old aunt about her daughter who had been complaining about how property prices were very expensive and they couldn’t afford one.

But this person who was the friend of the aunt related a story in 1959.

She says,

When I married in 1959, my husband earned $1,900 a year as a bus driver, and the cheapest brick house we could find was $7,600 on a new [1:26 inaudible]. Finance was not a problem, but we found it hard to save the $1,000 we needed for a deposit. This was, after all, more than six months’ wages.

In that book, I go on to explain how every decade after that, whether it be 1969, 1979, in the 80s, in the 90s and even today, it’s just as hard now as it was then.[sam id=31 codes=’true’] T

In fact, it’s actually almost easier now to buy a property for young people than it was back in the early 50s because banks, one, accept a lesser deposit.

Back then you needed at least 20-25%. Now the interest rates are all 5.5%, and is a percentage of your wage compared to the property value.

If you’re willing to look for your low set brick on the outer suburbs instead of inner city Melbourne, Sydney or Brisbane, then it’s really no harder than it was 40 years ago – if anything, easier.

Kevin: You pointed out to me that it’s more about people’s expectations nowadays.

Jan: It is. There are too many young couples who have grown up with the idea that they need a four bedroom brick house with a double garage and all the latest electrical appliances to go with it.

That can’t be. Of course it’s impossible. Of course that’s not affordable.

I think people confuse the words being not affordable with what they actually need and what they actually want.

Kevin: Yes. Just looking at the figures that you’ve given me it appears that the median price does actually escalate in value. Of course it almost doubles every 10-15 years.

There’s a current debate about in 15 years’ time – will the median (which is currently around $450,000 to $500,000 depending on where you are) be a million dollars in your opinion?

Jan: It could well be, but the only thing that drives those prices up is the supply and demand factor.

Supply and demand is also a basic of people’s wages.

Prices are not going to go to a million dollars unless people’s wages are commensurate with that amount. So when they reach a million dollars, and I say “when”, then it’s likely that wages will be commensurate and people will still be able to afford. But you’ve always got to look at that lower end when you’re first getting in.

Kevin: Yes. It’s always great talking to you, Jan. Thank you very much for your time.

Jan: You’re most welcome, Kevin.

You can listen to this interview at Kevin Turner’s Real Estate Talk – Tune in on the go to our weekly audio program and hear property investment news, tips and strategies from Australasia’s most respected real estate investing experts via your smart phone, tablet computer or in the comfort of your home / office.

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Australia's leading independent property commentator, brings together leading authorities on the property market. Each week at Real Estate Talk we take a fresh look at the property market so you get all the facts to help you make the right choice.
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