Syd and Mel houses grossly unaffordable for ‘middle Australia’

Despite the reduction in mortgage rates to all-time lows, CoreLogic’s head of research Australia, Eliza Owen, has released analysis showing that detached houses are still unaffordable to ‘middle Australia’ across Sydney and Melbourne.

At the national level, high income earners could afford to purchase at least 82% of Australian houses as of May 2021, versus 51.9% of middle income earners and 15.1% of low income earners:

Housing affordability in Australia

The median buyer could purchase just over half the houses in Australia.

These findings are based on household incomes modelled by the Australian National University (ANU) Centre for Social Research and Methods, whereby high income represents the top 75th percentile of earners ($2,760 per week), middle income represents the 50th percentile of earners ($1,654 per week), and low income represents the 25th percentile of earners ($905 per week).

Borrowing capacity was then estimated at these levels based on a 30 year loan term at an interest rate of 2.44%, repayments based on a 30% share of income, and the provision of a 20% deposit. From this, an affordable purchase price was estimated at the different income levels, which amounted to $376,041, $685,723 and $1,144,715 respectively.

Then Eliza Owen calculated what proportion of properties fell above/below these thresholds.

As expected, houses are least affordable for ‘middle Australia’ in Sydney and Melbourne, as illustrated in the next table. Here, Eliza Owen has adjusted the income figures based on ANU estimates for these markets.

Housing affordability across Australia

As expected, houses are least affordable across Sydney and Melbourne.

As you can see, only 24.5% (Sydney) and 29.2% (Melbourne) of houses were affordable to the median household.

Eliza Owen does, however, note that the majority of owner-occupied home buyers are non-first home buyers, thus “it is not income alone that enabled purchasing, but the sale or equity of an existing home that creates greater purchasing power”. Accordingly, “first home buyers are far more sensitive to price changes”. Moreover, “as prices increase faster than incomes, it is harder to accumulate a deposit, where our analysis assumes the buyer has a 20% deposit”.

For mine, the biggest affordability issue facing first home buyers is saving for a deposit. As such, first home buyers have increasingly resorted to borrowing from parents – the ‘Bank of Mum & Dad’ – which has hit a record high 60% of first home buyer mortgages, with the average parental assistance totalling around $90,000:

The Bank of Mum & Dad

A record share of first home buyers are receiving financial assistance from their parents.

Repaying one’s mortgage principal has also become increasingly difficult due to record low inflation and wage growth.

So, while it might be relatively easy to service a mortgage thanks to rock-bottom interest rates, it has become increasingly difficult to save for a deposit and repay one’s loan.

Unconventional Economist
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Comments

  1. Sydney and Melbourne houses grossly unaffordable?

    Sure, but that is a small price to pay when we are in the business of propping up a broken, corrupt and dysfunctional monetary system structured around endless growth of bank credit / household debt.

    All those bloated whale mortgages are doing us good!

    How else are we going to trash the AUD and bring back the Holden!

    Isn’t that the brilliant plan?

    End the bank economic hijack of the Australian economy by ending the bank monopoly of deposits at the RBA NOW.

    https://theglass-pyramid.com/2021/02/06/rba-watch-end-the-bank-monopoly-of-the-reserve-bank-of-australia-now/

    • Jumping jack flash

      Once they figure out how to get prices to start rising it’ll be ok. Scomo’s stimulus is looking like a fail. Businesses didn’t get the memo, probably because he forgot to send it! Businesses are paying back the stimulus that was meant to be handed to their workers to raise CPI!

      Higher prices will enable higher wages, and higher wages will enable the return of debt growth at the correct rate to counter the deflation caused by the existence of the debt!
      Once the deflation is countered by the correct amount of inflation, plus a bit extra for growth, it’ll be rainbows and lollipops forever.

      At least, that’s the plan.

      • pfh007.comMEMBER

        “Higher prices will enable higher wages”

        That is not the plan.

        The RBA seems to understand that higher wages will allow the mountain of household debt to be paid but that is very very different to anyone allowing wages to rise.

        We have already seen the farmers moaning about paying berry pickers more and that is just a taste of things to come.

        The borders will be opened as soon as vaccination rates get high enough and that means loads of imported labour to hold down wages.

        There will be inflation but not in wages.

        At least not if ScoMo and Josh have their way.

        • The government wants open borders, but the bulk of the population does not. Given the slow vaccination rate, they won’t open this year as planned and given an election next year, I doubt they will be fully open. Keeping them shut is an election winner just ask WA, QLD and TAS. Their hard border closures last year were very popular.

          • Doing my bit for lower prices…no jabhex:)
            Hope they keep the inja ban in place for foreseeable figure:))

          • pfh007.comMEMBER

            Scotty will set up jab hubs at guest worker departure points so he can claim that only vaccinated cheap labour will be allowed in.

        • Jumping jack flash

          There’s two things going on at the moment.

          One involves businesses asking for slaves to keep costs low and prices low to keep demand up and profits up. This is not an ideal path to take, but it is an easy one to see.

          The other involves businesses raising prices, the government throwing wage subsidies at them to pay to their workers so consumption can continue despite this, and then raising wages after revenue increases as a result of higher prices plus wage subsidies. This results in debt growth, and economic growth. This is a better path to take.

          Its a bit of a tug of war between the RBA and businesses.

          Unfortunately our leaders are incredibly stupid or this problem would be just about fixed by. Everyone would be enjoying higher wages and borrowing more money from the banks for consumption and houses, making the banks richer, and inflating the economy with more debt, which is known as “growth” these days.

    • ‘Middle Australia’ euphemism for Wyatt (Whyte) born in Oz hospital > 25 years ago. I can’t quite determine which demographic bank of m&d are buying for. Probably depends which year they purchased their house/s and how many offspring they have.

  2. John Bradshaw

    The ANU analysis is slightly flawed that it uses average wages across Australia to check housing affordability for Melbourne and Sydney. I’m pretty sure the 50% quartile in Melbourne is higher then $1654 per week.

    • From this article it says percentiles and not mean.

      Given Melbourne and Sydney are around 40% of the population, the figure for Melbourne would not be too far different and also note that Victoria has the third lowest household income in Australia. So the median number would probably be fine for Melbourne.

  3. Household incomes are usually two adults, so unless you’re in a stable, dual income, cohabiting relationship, you’ve got next to no chance of owning in Sydney and Melbourne unless you’re a high earner. It’s a form of social engineering that benefits big capital but also creates a massive underclass over time.

    • You’d need to be a phenomenally high earner. Pre-tax $3000 /week from a dual income leaves a lot more than what a single income may be left with.

    • Been f&$ked from the outset due to social engineering that morphed into mgtow, laws that allow married women to call themselves ‘single mums’ and claim benefits after divorcing husband & taking it all. Modern day Robber Barron’s many who live a cushy lifestyle on everyone else tax dollars who actually work for living. Mums who run a business from home, have work life balance teaching yoga / meditation etc juggling 1-4 children on the ‘bank of ex spouse’ helped out by ‘bank of m&d’ …WA introduced new laws that turned men over 35 into cash cows for miserable, entitled ex wives & burnt every other woman in the process. Add internet dating & Netflix to the mix and anyone not married & mort gaged by 25 is dead meat & single for life:))

  4. reusachtigeMEMBER

    I’m ok with that. It will mean a better class of people in Sydney and Melbourne over time as less successful types give up and move to QLD. I know this is definitely what Melbourne needs anyway.

    • ErmingtonPlumbingMEMBER

      Sure,…but who is going to Service that better class of people is all the working class people are gone?
      Are you ready to Pay $50 for a plain hamburger Reusa?
      $65 for a works burger.

      • reusachtigeMEMBER

        Nah poor people and immigrants will always remain to be indentured for those things. They always find a way like rats and cockroaches. It’s just the annoying less successful middle class we’ll thankfully get rid of.

      • Jumping jack flash

        With $65 hamburgers businesses will be able to cough up more wages. It’ll all work out. Nobody will care. In fact people will be overjoyed that the minimum wage is 6 figures.

        The important point is the volumes of debt that will be able to be obtained with those wages. Nothing else matters.

      • Cynical snake

        Look around ermo, the answer is already there and has been for a decade or more already.
        Immigrants at 10 to a unit will and are doing all the menial service jobs.

  5. $1,144,715 for a house in Sydney? Seriously? At that price a high income earner can aspire to living west of Blacktown. Houses in places like Merrylands (70s brick homes) are selling for 1.45m!

  6. For me the problem with Sydney/Melb RE prices is not so much the prices themselves but rather the fact that complete economic collapse will accompany any reductions in price. Our governments and banks know this and they’ll continue to pull RE rabbits out of the hat until one day there just aren’t any rabbits left. One day they’ll be left standing on the stage with nothing but their d!ck in their hand. It won’t be a pretty sight, none of us wants to go to bed with the image of Scotty standing on stage and waving his pathetic little thingy around like it has some magical power. That’s the image that will destroy Australian RE and with it the Australian pseudo-economy.

    • For some reason I am reminded of the great Willard Scott – the first Ronald McDonald and later weatherman for The Today Show. He was a great guy, but he did become a bit portly over the years due to his “magic tray keeping him well supplied”.
      https://www.youtube.com/watch?v=JNKywk1HNAQ

    • Who knew? Micro peni$ reveal on national stage, by bespoke suit wearing overweight soy boy politicamagicians will herald the end of the housing market. Micro dick$ source of disappointment, disillusionment, disdain, derision, & emptiness in the bedroom no matter the quality of hormones or skill of surgeon..imagine the same when folk see same folk standing on podium telling them the markets done just like the wee Irishman in 2008:) lols

  7. FUDINTHENUDMEMBER

    Methinks it’s pretty optimistic if you think you’ll be on 2.44% for 30 years..

    • Thats right we will be on 1% soon and maybe further down the road to keep the dream alive we will be at -1% 🙂

      • happy valleyMEMBER

        Captain Phil would be ecstatic with NIRP – the crowning glory for a bloke who joined the ivory tower from high school.

    • Problem is everyone taking out a loan right now believes it. So at some point it will become truth if everyone is committed to the idea, the RBA won’t dare raise. As to weather or not they will have a choice is anyone’s guess.. Reusa says they have plenty of rabbits. 😀

      • Reusa may be a bit of an uber housing bear piss take, but he’s absolutely right.

        There are no lengths to which the LIBALP political cartel, the treasury, the RBA and banks will go to boost land values.

        • happy valleyMEMBER

          Yeah, there are probably not enough buses in Straya for them to throw people under.

      • RBA doesn’t have a mandate on houses but does have a mandate on the AUD. Creating funny money and low interest rates for eternity so people can buy houses and the expense of destroying the currency would be a massive deviation from RBA mandate. It will have to work out a way to not destroy the dollar (through manipulating IR against global markets) while trying not to destroy employment and economic prosperity.

        ‘The Reserve Bank of Australia (RBA) is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959 . Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.’

        • Cynical snake

          Given the current situation full employment and economic prosperity and welfare are pretty directly tied to housing so they may as well have a housing mandate.

        • Mandate? Reusa doesn’t do those. Only Womandates, and besides since when did the RBA give a stuff about their obligations? They are unaccountable to anyone and their own organisation that doesn’t have to answer to anyone really.

  8. Jumping jack flash

    “…and the provision of a 20% deposit.”
    There’s the problem right there.

    20% deposit on a median Sydney house amounts to the cost of an entire house just a few short years ago! Entire houses were impossible to save in their entirety back when that was the price and incomes were similar as today, and debt was essential, so why would it be any easier to save it now?

    What about a 5% deposit? Even that’s pretty high and incredibly difficult to save up these days, but rerun the model with that assumption and see how you go.

    The barrier to debt eligibility is the ridiculous and antiquated deposit, which will approach infinity as house prices approach infinity while the deposit amount is set to a fraction of the requested amount of debt. Its simple maths. It means their system is destined for eventual failure.

    • Agreed; this is a significant barrier to entry if you don’t have parental support. In the USA, the standard deposit would be 10% rather than 20%, with lower stamp duty as well; minor renovations such as kitchens, recarpeting, etc. can also be factored into the mortgage, which is generally not allowed in Australia.

        • Jumping jack flash

          The US had their crash in ’08 while we powered through.
          We probably have an extra 10 years’ worth of debt growth and house price rises than they do presently.

          Don’t be fooled into thinking their situation is any different to ours. We’re all cooking from the same recipe.

          The US is also spending 4 trillion to get CPI rising as well. If they can pull it off their economy will slingshot ahead powered by a wave of CPI, wages growth and a tidal wave of debt the likes of which has never been seen before. It’ll be great. For the banks. And they’re the only ones who matter.

          • That’s a fair point, as you say, the banks are the only ones who matter to the Economy. At least in their view point. It’s also why we’re in the mess we are. But I can scream that we need to change or I can play the game to the best of my abilities. I do think at some point it just won’t work anymore. But when that is, I don’t know.

    • SoMPLSBoyMEMBER

      Yep!
      Spot on JJF!
      And just off on the sidelines are the architects (lenders) who have managed to implement the most cunning business plan. Embedded in the stratospheric prices people pay is an enormous ‘margin’ that feeds an insatiable appetite yet most don’t see the connection.
      It’s booked as ‘profit’ which makes it ‘good’ (everyone agrees) but it’s a theft well beyond predatory and it will only increase unless we find a way to apprehend this out of control ‘industry’ before it destroys this country.
      https://www.reuters.com/article/australia-banks-results-preview-idUSL1N2MM06T

    • DodgydamoMEMBER

      Which is why near the end all the starry eyed 🤩 young people will be allowed to freely access their super balances as deposit.

      • Sadly I agree that’s coming, and it’s a last ditch attempt at saving this thing. Although as Reusa points out, they have unlimited rabbits because the solutions get more and more absurd. Soon we will all be buying bits of real estate via Crypto and trading that amongst ourselves and never actually own anything – and we’ll be happy for it. 😀

  9. Arthur Schopenhauer

    The latest Jolly Swagman Podcast (Marvelous Melbourne) explains the historical roots of the current house-mania.

  10. I think govt should issue each Australian with a trillion dollar coin – with the proviso that it can only be spent on housing.

  11. JunkyardMEMBER

    Saving a deposit is not that hard for a two income working family if you’re sensible. The problem is someone keeps moving the effing goalposts.

    Just when you think you are within range of a sensible loan amount the game masters pump up the prices again. It feels like chasing a mirage, just as you are about to get there it disappears over the horizon again.

    • I know that feeling, except I was trying to buy a house outright and avoid a loan, but they kept pumping prices, which happened to increase in line with my investments so the goal was always 20% away or so. I could never out perform the housing market, shamefully. 🙂

  12. “Repaying one’s mortgage principal has also become increasingly difficult due to record low inflation…” Huh? Low inflation keeps expenses down (and therefore makes paying off principal EASIER), unless that point was re low inflation keeping wage growth down?

    • Arthur Schopenhauer

      General inflation is usually accompanied by wage inflation, which, if the historical pattern holds, reduces the debt burden in real terms.
      Ask any Boomer who bought a house in the 70s or 80s

      • “General inflation is usually accompanied by wage inflation”

        Yes, *usually*, but not now and not for many years. They can make up a lot of stats to deceive people but wages isn’t one of them. Your average worker knows what their pay slip says!

        • Jumping jack flash

          The problem is the last 15 years of CPI suppression because Howard thought it was necessary, and it may have been at the time, arguably it was the absolute wrong decision even at that time.

          It speaks volumes about the mental capacity and calibre of the people we have leading us at the moment. They’re mechanically following and enacting policy that should have been retired years ago, but they just have no clue.

    • Plenty of inflation, just not measured by ABS / RBA numberwang. So actually everything is more expensive but wages are stagnant.

  13. TailorTrashMEMBER

    They may be out of reach of middle straya but
    The Middle Kingdom won’t see that as a problem

  14. Lord DudleyMEMBER

    Zoiks! Think of all the commissions the ticket clippers must be getting off these high prices. If I still lived in Australia, I’d be encouraging my kids to be ticket clippers of some kind. I’d also teach them how to recognize a trough, and how to get closest to it. Also that pigs get fed and hogs get slaughtered. And that mates help their mates.

    With those life lessons, my kids would go far in Australia. I live in the US though, so they’re probably just going to do lame stuff like engineering where the opportunity for grift is pretty small unless you scam stupid investors with dumb startups.

    • Hey! Some of us still want our kids to do lame stuff like engineering. My 6yo wants to be an engineer like his dad.

      • Shame on you!
        Filling the mind of a six year old with fantasy tales of engineering glory is greatest disservice an Aussie parent can possibly deliver. what are you thinking!
        You do understand that 20 years from today Engineers will be the new Paedos, there’ll be RC enquiries and lots finger pointing, moral tut tutting and attempts to compensate the victims for the social cancer that their parents forced on them. But as everyone knows they’ll be labeled as damaged goods and that’s a tag which you can never cut off.
        Only problem is, I wish I was joking

      • Know IdeaMEMBER

        I can only dream of my kids wishing to follow in their dad’s footsteps and pursue an engineering career. Lordy, I would even be happy if they would settle for a science-based career. But no, the lure of the humanities is too strong.

        And for entertainment purposes consider the incongruity and incredulity that would arise in the following scenario: an old battle scarred engineer discussing identity politics et. al with teenagers studying humanities.

      • Jumping jack flash

        My daughter is keen for engineering. Robotics too, just like her dad.

    • If you live in the USA then you need to steer your kids towards the local USA rorts:
      * medical spending
      * military spending
      * predatory finance (Wall St)
      * law
      * lobbyist
      * CIA untouchable
      * Clinton, Bush, Biden, Gates, Rockerfeller family business
      * Minority industry rorts relating to banned words such as j?w, bl?ck, g?y

  15. kierans777MEMBER

    Reading this, you really have to ask what Alan Kohler was smoking on Q&A last night

    • happy valleyMEMBER

      Indeed. Alan trousered something like $8m for the sale some years ago of his interest in now defunct Business Spectator and I suspect son Chris is probably doing ok from his various media gigs.

        • The difference is that only one can be turned upside down to shake out the $$. The other has it smartly stashed in their jocks, unable to move regardless of orientation.

        • Yes there’s a difference. One has a hole in the pocket to facilitate a short game of pocket billiards.

    • Dream run, because no infestor activity. Now that investors will jump back in, FHBs are screwed. Plus the equity in an average detached house has already gone up by 20% which has negated any benefit of lower rates in terms of buying opportunities. So yeah, locked out FHBs were not quick enough to grab a slice of the Aussie dream.