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Houses are no less affordable now than they were in the eighties

Is Australia’s property market really in the throes of an affordability crisis?

Do today’s potential first homebuyers really have it tougher than their parents did last century? Is it all really as bad as what many commentators and the media would have us think?

According to head of property research at ANZ Bank Paul Braddick, those looking to get their foot in the proverbial property door are no worse off today than purchasers from the 1980’s.

In a WA Today report, Braddick says that, contrary to popular belief; Australian property prices have increased in line with rising incomes and lower interest rates over the past thirty years.

No drop in purchasing power.

And that the purchasing power of today’s homebuyer is equal to the actual cost of the average home (including mortgage payments), as it was during the mid-1980s.

Braddick’s opinion that, “Prices are justified where they are now,” is not one that has been widely supported in recent times, with many commentators claiming housing affordability in Australia is at an all time low.

However he backs up his argument saying, “Increasing incomes and a fall in interest rates have basically been capitalised in housing prices.

“People tend to look at the period 2000-03 [when property prices skyrocketed in cities such as Sydney and Melbourne] but they were really only getting back to where they should be.”

Given that the official interest rate soared to around 17 per cent during the early 1980s and mortgage holders are now enjoying a relatively low cash rate of 4.5 per cent, it’s not surprising that the affordability factor pans out pretty evenly over the last thirty years when you take all associated costs of homeownership into account.

In fact Braddick says purchasing power is actually becoming stronger and could exceed real property prices within the next 12 months.

Western Australian Council of Social Services chief executive Irina Cattalini disagrees, claiming that, “The number of properties that are considered to be affordable that are on the market that are commensurate with people’s incomes is very low.”

“Housing affordability is a real issue.”

Cattalini says a growing number of West Australians are spending more than 30 per cent of their income on housing, which is a sign of mortgage stress.

However Australian Property Monitors senior economist, Andrew Wilson, says Australia’s rigid lending criteria ensures that buyers only spend what their income will allow and therefore the affordability peaks and troughs are minimized to a large extent.

He claims that the increased number of households with two wages, as well as higher average female incomes, have put buyer’s in a better financial position than they enjoyed three decades ago.

Economist Chris Joye has written many great commentaries concluding the same including this one. Sure property prices are expensive, but they’re no less affordable than before.

What is affordable?

One of the easiest ways to have an argument on the Internet property forums is to bring up the topic of affordability.

But think about it…what is affordable and what isn’t? It depends who you ask.

With house prices falling over the last year or two and interest rates dropping I don’t really think affordability will be the big property issue this year.

Instead potential property purchasers will be watching what’s happening in Europe and waiting to make sure that property prices have stabilized here before they hop into the market.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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