Take claims of affordable housing with a grain of Salt

By Leith van Onselen

Two years ago, the Sunday Telegraph published an article citing Commsec research showing the sharp deterioration of housing affordability over the past 50 years:

AUSTRALIANS have to work almost three times harder to pay off the average family home than they did 50 years ago.

Figures compiled by CommSec for The Sunday Telegraph reveal homebuyers on the average income now have to work for 19,374 hours to buy the average Australian house with the average mortgage.

Based on an eight-hour day and a five-day working week, that equates to about 10 years of work. In reality, it takes much longer to own a home, because wages must pay for all living expenses, not just housing.

In 1960, it took homebuyers just 7500 hours to pay off the average mortgage.

CommSec chief economist Craig James said that half a century ago, average wage-earners took home the equivalent of $1.08 an hour.

They needed to work 25 hours to meet the monthly mortgage repayment of $25, based on an average five per cent interest rate and a mortgage of $4620.

Today, the average worker earning $30.04 an hour spends 70.7 hours – or almost two weeks of the month – at work to cover the monthly mortgage repayment for an average $283,000 loan at a 6.64 per cent interest rate.

The figures show rising costs and growing property prices have largely outstripped wages and young couples today need to work longer and harder to achieve the great Australian dream of owning their homes.

Whereas homes were once affordable on a single wage, families now realistically need two incomes to fund a mortgage.

To me, Commsec’s measure of housing affordability is sound. That is, if households are now required to worker longer hours to pay-off a typical mortgage than was the case 50-years ago, then housing affordability has clearly worsened.

Viewed in this way, it was strange to read separate research from KPMG’s Bernard Salt, on behalf of Commonwealth Bank, arguing that housing affordability today is broadly unchanged from the 1950s because households are working more hours, due mostly to an increase in dual breadwinners (my emphasis):

A NEW study has challenged the view that housing affordability for families has worsened significantly over the decades.

The reason is that most families now have two breadwinners because there are many more women working.

Social researcher and KPMG partner Bernard Salt compared wages and house prices between now and the post-war period in the study out today for the Commonwealth Bank.

He found the average salary in the early 1950s was 525 pounds and a three-bedroom brick-veneer house in outer Melbourne cost about 3750 pounds.

Today, average annual household income is $127,000 and the same house is about $850,000.

Mr Salt said the ratio between home prices and income remained about seven-to-one, making affordability similar across time.

“You’ve got two breadwinners and that’s been built into people’s preparedness to spend money on the family home”…

“They are busy working mums, they can afford it”…

Putting aside the fact that Australian households are now required to work longer hours to achieve home ownership – clear evidence that housing has become less affordable over the decades – Salt’s claim that average household income is $127,000 is not credible in light of the following facts:

  • The 2009 Household, Income and Labour Dynamics (HILDA) Survey estimated that an Australian household only needed to earn over $77,500 after-tax to be classified in the top two income quintiles (i.e. the top 40 per cent of income earners);
  • Average annual earnings (pre-tax) were only $54,600 as at March 2012; and
  • The ATO Taxation Statistics showed that average (pre-tax) taxable income was only $66,500 in the 2009-10 financial year.

Clearly, whichever way you cut the data, Salt’s claim that average household income is $127,000 is very inflated, which throws his whole affordability argument into intense doubt.

As a quick aside, the below video of another Salt presentation is worth a look:

[email protected]

www.twitter.com/Leithvo

Comments

  1. The whole idea that housing affordability is fine if it tracks income growth is a bit odd. Would it be any cause for celebration that the cost of cars, washing machines, air travel, food, etc are as affordable as they were (not) in the 1950s?

    Generally one would expect that affordability would improve over time as construction techniques become efficient. People would have the choice between a falling price for a house with similar features as in previous decades or more features for the same price – more bang for their buck.

    Even the cost of land should not have a major impact as the amount of land required for a dwelling can be reduced as the demand for a location rises – by dividing the land in the horizontal and vertical planes. Eventually, it will become a factor but the idea it is a factor in low rise Australia is a joke.

    And there it is.

    Controls on the sub-division of land (horizontal and vertical combined with easy credit = unaffordable housing.

    • Exactly, Pfh007. Matt Ridley actually says the following on page 25 of “The Rational Optimist” (after discussing the falling cost of most items in the modern age):

      “……Housing, too, is itching to get cheaper, but for confused reasons governments go to great lengths to prevent it. Where it took sixteen weeks to earn the price of 100 square feet of housing in 1956, now it takes fourteen weeks and the housing is of better quality. But given the ease with which modern machinery can assemble a house, the price should have come down much faster than that. Governments prevent this by, first, using planning or zoning laws to restrict supply (especially in Britain); second, using the tax system to encourage mortgage borrowing (in the United States at least – no longer in Britain); and third, doing all they can to stop property prices falling after a bubble. The effect of these measures is to make life harder for those who do not yet have a house and massively reward those who do. To remedy this, governments then have to enforce the building of more affordable housing, or subsidise mortgage lending to the poor……”

  2. If I recall correctly (don’t have time to rewatch) that’s the clip where he practically endorses astroturfing to support the property price rise agenda…

  3. And this also once again shows that there is no such thing as independent advice. We need to let go of that fairytale…

    • It is a shame with Salt, because I like his demographic takes on Australian society. He definitely has this one wrong and has made a nice little earner for himself spruiking and contorting facts & figures. When I started in the mid eighties in the Police (not in the job anymore), I could not understand that most of the older Police could pay off a Sydney mortgage on one wage – it seemed beyond comprehension, but the old salties would regale tales of meeting ALL expenses from the one wage – mortgage, food, utilities, beer ands even holidays and they could not work out how on earth it had all changed so suddenly where both partners had to work.

      This is anecdotal yes, but before house prices started their steep rises in the 70’s, from what I have been told, the living standards of the 60’s were not driven up and you were not chasing your tail all the time. +1 on MB independence.

      • The Patrician

        The Wood inquiry may constitute an unforseen externality re the post-80’s purchasing power of NSW police in your anecdote

      • Yes Patrician – the Wood Enquiry did deal effectively with ‘corruption’ in the NSW Police. The fringe benefits of the job in the pre 90’s were very good and seen as completely ‘normal’; but I would suggest that the ‘perks’ are better in many more jobs, especially the financial services. The point remains though, on an average wage in the 50’s, 60’s and 70’s – one could live quite well and afford the mortgage, that was my main theme. Also Police wages have to reflect the findings of Wood and are the highest in the world in NSW.

  4. That is excellent video archive digging. It is an frightening and very enlightening endorsement of how propaganda can be used to manipulate markets to cloud fundamentals and raise doubts. Any further public opinion by Mr Salt (and presumably KPMG given he is a paid employee) need to be very carefully examined in this context. It also explains the seemingly fantastic spruiking by campaigns run by interested parties in the property market: Not about truth but about “getting the comment out to mums and dads to change the grassroots mindset”…..

    • True: “propaganda can be used to manipulate markets to cloud fundamentals”
      CranBerry, you mention KPMG.
      Q: what is the connection between Canberra policy makers, unaffordable housing & KPMG?
      How about: Board of Taxation Members. Here’s one I found earlier: http://www.taxboard.gov.au/content/Content.aspx?doc=about/board_members.htm
      Part of the Charter of Board of Taxation is to “contribute a business and broader community perspective to improving the design of taxation laws and their operation”.
      In layman’s terms, that means: shaft renters and protect speculators – especially speculators who sit on the Board of Taxation or related parasitic FIRE economy businesses.
      The integrity of the tax system is up the spout. Board of Taxation Members know it because they designed it for the well-off, ie themselves. The tax laws are then rubber-stamped by the Treasurer of the day and served up to the sitting ducks, aka, tax-payers whose attention is constantly distracted by TV, gossip, news etc.
      Bit of a transparent joke really.
      I have watched now for a decade as the tax system is manipulated to protect those who need the least protection – the well-off and equity rich.

  5. A dual income household earning $127k ought be able to afford a superior house. In this market, $850k does not buy that. And at 6.7 times earnings that house ain’t cheap. Fortunately, the market is correcting.

    Don’t Buy Now!

    • Assume he means 127k after tax? I earned more than that but wouldn’t have considered buying an 850k house.
      That salary is say 6500 after tax, and assuming you put 150k down on that 850K house, you need 5k a month. Doesn’t leave much leftover to pay the rates and power …
      Seems Salt is playing to the lower middle class who think that is a fortune, ergo greater fools abound …

  6. Jumping jack flash

    Well that is of no surprise that the average houshold income is around 80K, making 125/130K well off.

    The problem occurs when those earning 130K household income are paying more than 50% of it to the bank for the house and the two cars and the 5 credit cards, etc etc. Then their income after taxes and debt is effectively around 50K or less and that is really quite low.

    • I also want to know what the interest rate was for the 1960 mortgage affordability calculation.

      It is unfair to compare a low house price/high interest rate with a high house price/low interest rate. The latter always costs more. I know the “this is how long it takes to pay the mortgage off” calculation compensates for this, BUT:

      There is a high chance of the high interest rate coming down, and of the low interest rate going up, over the term of the mortgage; leaving the gap between the 2 hypothetical households even greater.

      Furthermore, when there are high interest rates, there is usually high inflation and wages are rising along with the CPI price items; which makes the amount of “principal” owed lower and lower in “real” terms, enabling it to be paid off even quicker. This principle, “inflating away debt” is well known.

      And it gets even better for the hypothetical household in this situation. If inflation falls and interest rates fall, they re-finance at a lower interest rate.

      But when house prices are high and interest rates low, there ain’t going to be any of this to help out our young mortgaged families. Interest rates are likely to go up, not down, and even if they stay low for a long time, this will be accompanied by income stagnation.

      All the excuses being made by older people about how tough THEY had it when interest rates were higher, is just missing the crucial point. Everything that happened following their mortgage being signed up, made it easier for them. The mortgage principal was inflated away, and interest rates fell a few years down the track.

      This is not going to happen to the current generation.

  7. Leith

    Although your debunking of Mr Salt’s claims are correct IMO, let’s assume he’s correct.

    Surely that means that unless we become a nation of polygamists, house prices are not going to rise at anywhere near historical levels. In which case why would any family work 2 jobs ie double income their whole lives to in effect reward the current rent seekers?

    • …or the children stay at home and help M&D buy the offspring’s inheritance….demand may leave the market in all sorts of ways.

    • Deus Forex Machina

      Amen to that…I’m hoping Gen Y or at least my Kids generation figure that out even if it costs me in the long run as my house price falls.

    • russellsmith55

      Lol!

      Good to see you posting again Deep T, I really like your input. What’s the risk we’ll end up with couples taking out up to 60 year mortgages on the assumption the kids will pay it off?

  8. the vid?…..for me he gave himself away within the first minute, sorry Salt – but sure is a quick way to avoid wasting time though, so ta for the very short vid.

    – sounds like the US’s sprucing of biz over hippies back in the 60’s/70’s….

  9. I’m tired of these reality distortion efforts by vested interests, who DO they think they’re fooling?

    It’s a well known fact median house prices in Sydney are 9x average annual income and that we only have to go as far back as the 80s (not 50 years) to find it was only 3x.

    • The Patrician

      who DO they think they’re fooling?

      ….probably 40+% of the population.

      Thats all you need according to Bernard.

    • Mining BoganMEMBER

      That’s the problem I have with this rubbish.

      I bought my place all those years ago at 2.5 times what I was earning in my average job. Then I scored the dream bogan job. Earning four times as much as back then. Score! Thought I would buy a nicer place in the same area.

      WTF? Now I had to pay three times my wage! I had totally lost track of house prices. So I got an appraisal on mine. Wow! No way in the world would I be able to afford what I have now on an average wage.

      That is the problem. These vested interests can talk it up as much as they like but it doesn’t make sense.

      • drsmithyMEMBER

        WTF? Now I had to pay three times my wage! I had totally lost track of house prices. So I got an appraisal on mine. Wow! No way in the world would I be able to afford what I have now on an average wage.

        Exactly.

        The benchmark I use is that I could not afford to buy the house my parents owned when I grew up – despite being in a much higher (relative) income bracket and nearly ten years older than they would have been when they bought it.

    • Forrest GumpMEMBER

      Fooling people is part of the housing game. You only need 1 fool to by your house…not 100. I would like to share a story with you, so my apologies for boring you if you choose to read on. I work as an engineer sourrounded by educated intelligent people. To my surprise I have discovered that 5 of my work mates (all professional engineers 35+ years of age) have purchased houses as investments over the past 2 years, with some in the past 12 months. “Why” I ask are you making such a stupid decision? I take them through the maths of negative gearing & taxation in a way only a level headed engineer would understand and lead them to the conclusion that its a worthless investment that may get you a 3.5% return at best. Their response is ..”But the capital gain will make up for it,and house prices never go backwards..” Again I show them the data on house prices retreating. But yet, they have been fooled into believing that the data cannot be true. Now if I may add the final dataset on this story. The 5 that have purchased are immigrants (arrived in the past 3-10 years) mostly from the sub-continent. Please dont get me wrong, I love them all like my brothers, but their foolish belief in the housing market spruiking machine leaves me gob smacked.

      • I agree on the last point. I am trying to convince my cousin (who is from subcontinent) into not buying now an “upgrade” using all the logical arguments I can muster. Falling prices, check; increasing stock, check; very low equity in current mortgage, check; low rents, check. No logic works because “bank says we can afford it, it always goes up and we dont want to live like renters!”

        In the immigrant community, especially from the subcontinent, it is a rule that if you do not own a house then you must be a loser. Oh yes, and there is a subtle, pervasive class system as well depending on the suburb you live. You live in Boronia, barf; but Glen Waverley, ooooohhh.

        I lived in the US for 7-8 years before moving here a couple of years ago. So I know just how stupid this mentality and culture is. However, if I had not seen what happened in the US (or if I had not been reading MB), I am not sure I would have been any different.

        And this is one of the reason why I think a massive crash is good for the economy in the long run. It will be painful, no doubt; and close to home for many. A massive crash is what AUstralia needs to get rid of “it always goes up” mentality.

      • I know what you mean.

        My wife is of sub continent heritage.

        Her yougner sister has a houses, though they are mortgaged to the hilt, and can only afford to have a kid if the husband is guarenteed a 6th day on overtime rates per week.

        We rent because I refuse to buy.

        My wife gets openly mocked by her sister and her parents for not buying a house.

        We argue a lot about this, and as I previously stated, to the point divorce has been mentioned.

        This housing bubble has had me endure real suffering.

      • LOL! I’m new on here, but when I saw this particular mini-thread, I had to laugh and put in my 2 cents.

        I’m of sub-continent origin, but from South Africa. The sub-continent obsession with buying property, and the idea that property always goes up is so true!

        Before I moved to Australia, my wife (also from the sub-continent) and I conformed to the norm and had bought a house, mortgaged to the hilt. Guess what? We still have the house as an “asset” and the mortgage now. We can’t sell the place. So, we’ve got tenants in there, for what it’s worth and we pay the principal down with a little bit extra from our earnings here.

        We’re both professionals – I’m an accountant in fact – and there is no way we are making the same mistake again. Unless housing in Australia becomes affordable on a single income.

        Is that a pip-dream?

      • dumb_non_economist

        Forrest, Your example is the biggest problem I have with the belief of RE returning to long term averages re income from a slow melt. I’m not saying it won’t happen, however once the economy picks up RE will boom once again. IMO the only way to put a stake into the vampire of RE is a RE bust like that experienced O/S. Real pain will need to be felt for people to remember and hopefully understand why.

        I’d also point out from my experience it isn’t just immigrants who hold your work mates belief, I’ve spoken to lawyers, doctors and accountants who think like that, it isn’t an intelligence thing, it’s a mindset that’s been ingrained into us for bloody decades.

        For a while now I’ve held the opinion that Salt is nothing but another spruiker with vested interest in every utterance!

  10. I’m confused by Mr Salt’s premise, is he saying house prices have risen to soak up all that extra income the working women have provided?

    Isn’t that putting the debt (cart) before the debt slave (horse)? More likely households have two bread winners because they NEED two to meet living expenses after paying for the ridiculously overpriced house!

    • russellsmith55

      If that’s true, its an ironic/terrible distortion of gender equality. Instead of women being able to achieve financial independence on their own, they still miss out – but now single men miss out too as only couples can afford to own a house…

      • So true, as a single working woman in my 40s I find myself totally locked out of home ownership and doomed to a life of renting in an over-priced rental market. So demoralising…

    • Clearly Mr Salt has no idea how much child care costs these days. Once you factor in paying $50-120 a day per child in Child care fee’s or the wages of a nanny all of a sudden the net increase in income gets smaller and smaller almost to the point of being inconsequential in some cases.

    • chicken_little

      That may be the case now, but it wasn’t the case in the 70s when all this two-income family thing really took off. The effect was to provide a once-only boost to a nuclear family’s purchasing power. As always, the early movers did very nicely through their adoption of the new paradigm, but (as observed by Deenominator)it’s now become a millstone carried by the ordinary couple trying to establish a modest life for themselves.

  11. Ahh, the troller-in-chief himself.

    I have seen similar arguments about affordability used by the trolls. Now I know why they all sound familiar – they get fed the same sh!t and regurgitate it all over the inter webs.

    Going by the content of the video, he tries to get Property Council to sponsor his “research”, but seems to have failed. But he got a willing accomplish in Commonwealth Bank.

    • I remember that. He said something like how there’s a disconnect between peoples’ skill sets and what they expect from life. Which is for damned sure true in my experience, but by god his property “investor” and big business mates take the cake on that one.

      He represents everything that is wrong with the people in power.

      Who takes him seriously? Oh ok, house prices are double but they’re not really, it’s a hologram, and you can just chuck your infants in childcare like they’re battery hens.

  12. I have a question UE which hopefully you can help answer, I have been reading this blog for quite a while and SMH Domain’s articles for a while, and all the useful comments and discussions that all property articles generate.

    The question is : If you were to find the true villain/s in the dire property situation Australia faces, how would you sort the top three ??
    Having emigrated here about 5 years ago, I can only dream of ever owning a property at current prices, even though I have a 6 figure salary, and by reading about it I am still trying to figure out the different pieces of the puzzle and who to blame for this situation.

    I mean from all the articles I’ve read we like to think Developers are the villains for building overpriced “shoe boxes” instead of the houses we would like, or the Banks are the villains for flooding the market with “easy credit” and low LVR which allowed people to borrow more, etc, etc. Some even blame the Government for “negative gearing” and over regulation/red tape, which interferes with the market.

    But after all this reading, I realize developers have to build all the infrastructure the government doesn’t want to, so while they still make nice profits, it is not all their fault that they have to charge as much for the dwellings. Same with the banks, they can lend so much (100% even 105% at some point) because a lack of proper regulation/controls from the Government agencies.

    So, in my view, I am starting to think that it is the Government the true villain in this story? I mean how else would you explain the value of Land at this moment? (Don’t they set the price for that?) How come the land component of a dwelling is more than 60% now as opposed to 20/30% before… It might make sense in the inner city, due to a demand/convenience reason, but How come that land in the outskirts, say Castle Hills, with no trains, proper services, still costs so much?

    I can only imagine the lifestyle every single Australian could be leading due to the current boom period of more than 20 years, if houses where around 4x annual salaries. Imagine how the whole economy would be booming, sectors like tourism, hospitality/leisure, and retail…

    Sorry if the issue seems basic, I am in IT and trying to get a grasp in economic matters, such as how it is possible to live in a first world country with an economy booming, yet most people cannot afford a home and those who do live very cash-strapped due to mortgage repayments…. And how come the government seems to not get in trouble with the electorate for things that in my opinion should all be under their control…

    • Mining BoganMEMBER

      Top three villains?

      Greed, envy and stupidity.

      That’s what did it. Everyone else from the Government to the debt slaves were just players.

      That is higher powers at work.

      • True, debt slaves are easier to manipulate than people who are close to or debt-free.
        Good point ‘foreigner’ re “Imagine how the whole economy would be booming, sectors like tourism, hospitality/leisure, and retail…”
        I often think that. Inventiveness & creativity are more likely to be evident where people have a balance between life and debt.
        The govt has ceded control of the economy to the banks and RE lobby groups.
        At some point in time a large chunk of the population is going to work out what is happening.

    • Hi Foreigner. In my opinion, government policy is the main villain. In order to ‘fix’ housing affordability, I would do the following:

      1. Free-up land supply by loosening zoning laws and abolishing urban growth boundaries (no, this doesn’t mean ‘open slather’ development – environmentally sensitive areas etc should be protected);

      2. Fund housing-related infrastructure properly by copying Texas’ Municipal Utility District bond financing system;

      3. Abolish ‘negative gearing’ on pre-established homes (i.e. only allow landlords to claim property-related deductions against property-related income, not salary income);

      4. Introduce loan-to-value (LTV) ratio limits on mortgages (e.g. max LTV of 85%) as well as loan servicability limits.

      This is my wishlist – but it has buckleys chance of ever being implemented and would crash the market if introduced today.

      • You can get the 4th one on your wishlist if the spruikers lobby the government into implementing the Canadian “model” as it stands today.

        But it also means taxpayers open themselves to trillions of $$$s on insurance claims. 🙂

      • Bobby Fischer

        +1

        Perhaps the housing meltdown will provide the chance to implement some of this UE, because there will be much finger pointing and recriminations which can (sometimes) result in change if the populous is enraged enough and politicians fear they are about to be lead to the guillotine and experience Louis XVI’s fate…

      • thomickersMEMBER

        Nice List

        If only Point 4 was implemented by the gov, it would already be enough to solve everything (pop the bubble).

      • How about limiting bank mortgage books to only what they have in deposits? Would that work?

      • Jumping jack flash

        Better use of debt.

        Only productive debt allowed.

        Mortgages shouldn’t be required, just productive income, savings, and patience.

      • +a large number

        Re the politics.

        If the shooters and trappers party can get an upper house seat and thereby secure the right to pig hunt in national parks, there must be a quota for a party with those 4 points as their platform.

        The “Affordable Housing Party”

        Must be at least a quota amongst the 30% who dont own a property and those who do but object to gross economic inefficiency in a key market.

        Only need 500 party members to get it up and running.

      • Re the politics

        There are a couple of bloggers on this site that are members of a party interested in political and economic reform, mind you we haven’t had any elected reps for a while but we are rebuilding.

      • Democrats!! Good grief, thought they were finished long ago after Kernot merged with Evans.

        Vested interests are everywhere 🙂

      • First up is Item 3 for me UE.

        Rattle some sabres in that cupboard and watch the market blanch.
        How to avoid the crash is problematic.
        To manage the market down will take some thing other than an all or nothing attack on NG.

        But sooner more than later NG has to be phased out or down to a level where it is ineffective.

      • politically fraught for sure.
        So divvy up the problem. eg;
        >$150k incomes no longer have NG.
        or those holding >2 IP are excluded from NG.
        Sell it via class warfare somehow???

        Use our mate Bernard’s demographics to pick the fight.
        That should create enough political noise to dampen confidence.

      • “So divvy up the problem. eg; >$150k incomes no longer have NG.
        or those holding >2 IP are excluded from NG. Sell it via class warfare somehow???”

        As someone who strongly supports means testing for welfare and the complete removal of negative gearing, introducing an arbitrary cut-off for a tax deduction would be enough to for me to campaign against the idea.

        Much better to set a limit on the number of IPs in my view.

    • Thanks UE and others for the reply !!, I am really enjoying the learning process in economic/finance issues since discovering this site, I have already suscribed for MacroInvestor, all the best for the future, you deserve it!!

      maybe another way of “monetizing” the site would be for MacroBusiness to start their own political party, I know I would vote for you guys ! 🙂 , cheers

    • I would blame the banks and treasury for the debacle. Governments at all levels are dependant upon asset growth for revenue. The banks are the facilitators.
      All three political parties have no idea relying on treasury advice. State Goverments that are relied upon to deliver essiantial services have limited revenue sources, but primarily stamp duty is the major one. When there is a short fall, they fill the void with a sale of an income producing asset, that generally relys on the banks to finance the float that increases their dependance upon the stamp duties etc futher.
      The federal govt got used to high CGT incomes, now due to the losses from GFC, there is a tremondous amount of carried forward losses that will offset gains well into the future.
      Local councils are primarily dependant upon rates that are based on asset values rather than generating income or encouraging productive use of the land, and all three levels of government have vested interests that directed their policies for the continutaion of the status quo.

    • Excellent post, its interesting hearing about people’s experiences who havent had the housing meme’s drummed into them since birth. I couldnt agree with you more it doesnt make sense at all, the electorate should be crucifying the governments (at least from my perspective) for letting this happen yet it continues. It seems the powers that be have a vested interest in the status quo and wont do anything to destroy the wealth of “working families” despite the fact that wealth is built on the financial hardship and suffering of the non home owning classes.

      Even if were earning a low 6 figure sum I still wouldnt buy a house in this climate, even with taxes I could put the same amount of money in a term deposit and live in a rental property like a King and save money towards a future purchase.

      • Hi Tarric, thanks for the reply

        I am actually in a low 6 figure sum ( I am not rich by any means :), and my wife is not working due to recently having a baby, but anyway I am trying to do what you say:

        “put the same amount of money in a term deposit and live in a rental property like a King and save money towards a future purchase”

        But I have not been able to save as much as I would have liked since rents are going up like crazy ! so this leads to another of my questions that I was going to post to MB bloggers soon and goes like this:

        If most of Australian citizens are either renting or paying a mortgage and both (at least in Sydney) have been going up like crazy (at least 5/8 % in the last 5 years) and being rent/mortgage repayments a sizable chunk of an individual’s income (around 25 to 50%) in some cases, how come the CPI figure is always so low compared to what is actually happening to the market?

        My question is: UE, do you think the weights being used for the CPI calculation are a true measure of “cost of living pressures”, or should housing have much more influence on it since it is such a big percentage of the household income…

        I mean I don’t mind that much if a kilo of meat has gone from 15$ to 25$ in this last 5 years, since this is manageable, but my rent for the same kind of apartment has gone from 300 to 550 a week !, yet the CPI figure is 2 or 3% a year…. maybe if the true extent of housing costs was revealed in CPI that would force politicians or reserve bank to change policies/rates more accordingly….

      • Jumping jack flash

        In my opinion CPI is broken and will never be fixed.

        Can you imagine what would happen if they did fix it and showed CPI as true cost of living and running at double digits?

        Probably instant recession. Think nominal to real conversion. Thank about all the things that are “pegged” to official CPI, not the least of which is interest rates.

        For that very reason CPI must be stable and fairly low, and it is carefully constructed in such a way so it will be.

      • ABS hides the real rate of inflation by not including the land component of housing sales in its calc of CPI.
        RBA then uses this watered-down data to set interest rates.
        However, if RBA bothered to check its own database it would have noticed that bank lending grew at about “15% per annum compounding for the last 12 years straight” up until 2009:
        http://www.smh.com.au/business/dont-mention-the-debt-20090219-8c6e.html

        Govt has thrown the economy baby out with the fairness bathwater.

    • Ronin8317MEMBER

      Home owners vote for the incumbent government when house prices goes up, and vote against the government when house prices goes down. This is why government policies are always biased toward ever increasing house prices.

    • Governments are main culprit. They control land supply, are dependent on stamp duties and land taxes and do silly things like allow negative gearing and a succession of first home owner grants which are simply a transfer from the taxpayer to existing home owners and developers.

      Govts benefit when home prices appreciate faster than incomes. Home owners get that wealth effect.

      Sure, us renters have suffered, but our vote is much less important than the votes of the land holders.

    • BubbleyMEMBER

      I think the biggest villan was the deregulation of the banking system.

      Ausssies used to only be able to borrow up to 30% of their income. Now the banks will just hurl money at you.

      We recently went through the pre approval process and were offered double the maximum of what we wanted to borrow. It would be an outragous sum of debt to get into.

      But Aussies suffer from gleeful and boisterous optimisim and “the banks wouldn’t lend us the money if they didnt think we couldn’t pay it back”

      Yes.

      Yes they would.

      • Jumping jack flash

        This is correct. The debt could be technically servicable but income after debt and taxes is so small it is painful. Especially when you look at your 6 figure yearly income and live as if you were on the dole. It’s a bit rude.

        Credit cards and equitymate make up the difference for a while and fund the six-figure lifestyle you expect with that income, but that soon reaches saturation. It is just more debt that requires service.

  13. The Patrician

    Salt video and the Monckton/Mannkal boardroom vid should be required viewing for 1st year journalism/communication students.

    Would be of value to finance/economics/planning students as well.

    • Yes, 10+

      And when this bubble finally deflates, and people gather up the fragments of their shattered economic dreams, this video, should be scrutinized as prima facie evidence, in a Royal Commission into the collapsed Australian property market come ponzi scheme and held to account.

    • Yes, the Monckton/Mannkal (Hayak on Hood (street)) may benefit those communication students exploring means of reaching a wider audience…

  14. thomickersMEMBER

    $127,000!!!

    Thats even higher than the medians for Toorak/South Yarra/Kew/Hawthorn/Brighton households.

  15. Disturbing lack of honesty in the research, along with the Property Council presentation, confirms Salt in my view as having zero integrity.

    Listening to his comments on the value of employing social media astro-turfers in ‘managing’ public perception brought to mind the motivations of at least two prolific MB commenters.

    “Public policy is now determined by interest groups – Minerals Council proved this last year (2010)” What a glib, matter of fact description of the corruption of democratic representation in this country!

  16. Is the report publicly available?
    Before I slam Salt’s 127K figure, I’d like to know:
    -is that for all Aus?
    – Or just Melbourne?
    – Or just part of Melbourne?
    – The “average” is presumably mean rather than median, that will naturally elevate the figure

    Again, without reading the report, has he considered the fact that the cost of living on CORE things has increased substantially relative to income (eg. energy), also for households with young families a significant amount of money will be expended within a 7-8 year period on child care, where both parents work. This expense obviously did not apply when mum stayed at home. Has he factored this in? How about cost of education, school fees etc. How about the fact that many younger couple households today will have large student loans that eat in to disposable income – with free univeristy is past eyars households weren’t burdened with this debt.
    Answers, please!

      • OK, in the quote above Salt refers to outer Melbourne, so the study presumably is confined to a geographic area in Melbourne (somewhere “outer”). If it’s an upper middle value area, as the 800K house price tag would suggest, then an average household income of 127K sounds reasonable.
        I’ve just tried googling for the report, can’t find it. Would love to get hold of it. Leith?

  17. “Clearly, whichever way you cut the data, Salt’s claim that average household income is $127,000 is very inflated, which throws his whole affordability argument into intense doubt.”

    Leith, some work into the distribution of wealth would be VERY enlightening (I’ve started myself, but do not have too much time to pursue…)

    eg. the average might e $127K, but how is it distributed according to several key parameters, and how has that changed with time.

    (I can send you my own draft on this, but I think you’ve got more resources and familiarity than me on this!)

    My 2c

  18. One of the main reasons we now have more dual income families is because of the high cost of housing, not the other way around. I have done some straw polling and most women with young families would prefer to be at home with their children rather than out working just to pay the mortgage.
    Maybe someone could undertake a more scientific survey along those lines.

  19. This is simply disgraceful…but its also another reason I am more and more firming in the belief that my only real chance of having an economic future is to leave this country…

    If you have age on your side and a specialist skill that is in global demand, it’s one sure way to punish the criminals involved in this continuing scam, by denying them the one thing they will be crying out for when it all goes pear shaped…my tax dollars.

    That’s what the young people of Ireland seem to be doing…

    • …where would you go. UK, Spain, Italy, US France, Ireland, Latvia, Greece…and yeah, I think most the young Irish are coming here (they are at least used to high property prices!).

      • The US is still growing despite looks like a horrible economic malaise is still winding its way through their system…and you will agree that some skill sets are still valuable even in those depressed countries you mentioned.

        It’s not that I’m thinking of leaving because I want to either…it’s because I might just have to.

      • I would have to admit, the USA, (some of the southern states) would seem the logical choice, Alabama and Texas both have strong regional economies for different reasons.

      • The Patrician

        If you can tolerate the Mormons, Utah is a hidden gem.
        SLC has a couple of big Uni’s, the worlds largest open cut copper mine (Rio Tinto)and a developing IT sector.. there are jobs.
        Big new houses in good neighbourhoods going for $3-400K. Rent for 300-400 pwk fully furnished. Low crime rate, good schools and public infrastucture…and then there is the skiing/snowboarding/mountainbiking
        …and the mormons really do keep to themselves

      • Right on about Utah, too, Patrician. The wide roads are said to be because Joseph Smith had a thing about being able to do a u-turn with an ox-team….!
        What makes the difference in the bits of the USA that are attractive to pragmatists like us, is that they still have religion of some kind that keeps Gaia worship at bay. You know, “God gave us this land to fill and subdue”, kind of thing – no Green neo-paganism allowed…!!!!

      • The Patrician

        Noone builds and maintains roads like the Americans.

        Seeing 6 snow ploughs in formation clear a freeway in a blizzard at 60kmph is a sight to behold.

    • See you at the airport Mate, not much incentive to stay if you haven’t bought yet and have a marketable skill

      • No incentive to stay? How bout ‘safety in numbers’, maaaate?

        Also if you know you’re going to go down, you might as well do it with a fight. Consider watching Gallipoli and hanging a Eureka standard in your window. That orta stir yer fightin’ spirits!

  20. personally, I think Salt is all style, limited substance. He’s a colourful and talented writer, but his observations are not usually as profound as he or others may think.