The conversations of life

How will the kids afford their first home?


How will our kids afford their first home?  Turns out, pretty much the same way we did!

You are most probably like me, scratching your head wondering how young people will ever be able to afford to buy their first home.

Prices today, even for a modest home, make your eyes water and in the eastern states with prices increasing by up to 16 per cent in 12 months (Sydney 2014), it just seems a bridge too far.

This is a really important issue. We want the best for our kids and, if we are honest, we need people of all ages and incomes, including young people and immigrants, to be able to afford to live close by us, providing the workforce to support us as we age.

We had it a lot easier, didn’t we? Or so we thought.

Not so different

It turns out that, on paper, it is no harder today to buy a home than it was 20 years ago or more.

RP Data has analysed affordability as measured by cost of the average home divided by average earnings. This means how many years gross salary you have to earn to buy a home.

In Sydney it requires 7.72 times average earnings. 10 years ago it was 7.34. In Brisbane today it is 5.45.

Putting figures to this, the ABS tells us the average weekly earnings across Australia is $1,539 a week or $80,000 a year. In Sydney you will be looking at a $618,000 house while in Brisbane it will be $436,000.

Of course, if you require a 20 per cent deposit, it is still a lot of money to save after-tax. But then again, a young couple starting a family today will have had two incomes, where many of us did not. Perhaps because of this we were more frugal as well. A holiday at the beach was about as good as it got while today international holidays staying at four and five star hotels with exotic cocktails is expected! (Or is that just my kids)?

Scary price rises?

And while house price rises sound scary, RP Data’s research paints a different story (except for Melbourne and Perth). Over the past 10 years Sydney prices in real terms have only climbed 16 per cent – or 1.6 per cent a year. Adelaide is 11.6 per cent, Brisbane is 7.6 per cent, while Hobart prices have actually decreased by 7 per cent over 10 years. It just keeps getting cheaper there.

The story is not so good in Perth where prices have increased 43.6 per cent and Melbourne by 41 per cent in real terms over 10 years. While these are big jumps, the figures say people should still be able to afford it, given wage increases.

And interest rates are LOW, giving more available cash. Remember 18 per cent mortgage rates? I do!

But what the figures don’t tell is how far out of the centre of metropolitan areas these young families have to go for this affordable housing. In Sydney it’s a long way. A fellow who works with us travels for 90 minutes in each direction each day. That’s three hours travelling to get to work and back home. He doesn’t see much of his two kids.

So all up, while I feel for my kids saving for a home, I am a bit more relaxed about it. Time for a drink, maybe one of those exotic cocktails!

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