This week on Real Estate Talk Jan Somers tells the amazing story of a letter she found that was written about 50 to 60 years ago that dispels the myth that Australian and New Zealand property is not affordable.
Here’s the transcript:
Kevin: There’s certainly been a lot of talk recently about property affordability. How affordable is it? There have been people saying that it’s just not affordable, that Australia is probably one of the least affordable countries in the world.
Let’s go back in time a little bit. I had an interesting conversation with Jan Somers from Somersoft.com.au, who’s probably discussed this topic on a number of occasions, I would imagine?
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, does it?
Jan: 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. I was a letter that I put a copy of in one of my earlier books, 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. This person, who was the friend of the aunt, related the story. I won’t bore everyone to tears; I’ll just read one paragraph:
“When I married in 1959, my husband earned $1900 a year as a bus driver, and the cheapest brick house we could find was $7600 on a new estate. Finance was not a problem, but we found it hard to save the $1000 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 and ’90s, and even today – it’s just as hard now as it was then. In fact, it’s actually almost easier now for young people to buy a property than it was back in the early ’50s, because banks accept a lesser deposit – back then you needed at least 20 to 25% – and as 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, it’s easier.
Kevin: I think you point out to me in an e-mail, too, 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, ensuite, and all the latest electrical cons 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: Just looking at the figures that you’ve given to me, as well – and we’re not going to go into any depth in these – it appears that the median price does actually escalate in value. It almost doubles every 10 to 15 years.
Jan: 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, so 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 them. But you always have to look at that lower end when you’re first getting in.
Kevin: Jan, always a pleasure talking to you. Thanks for your time.
Jan: Thanks, Kevin. No problem.