Real estate in Australia has never been more affordable!
Yes, it’s 2018 and I just said that…
I’m tired of hearing people complain that the housing market is too unaffordable… If you actually look at the numbers, it’s more affordable than it’s ever been.
I have pulled data on:
- house prices;
- interest rates;
- household incomes; and
- mortgage repayments (i.e. principal and interest on a 30-year loan at 90% LVR) from 1988, 1998, 2008 and 2018.
Here are the numbers based on monthly mortgage repayments in each year represented as a percentage of monthly household incomes:
Year | Interest rate | House price | Repayment | Household income | Repmt: income (%) |
1988 | 15.00% | $120,000 | $3,771 | $5,800 | 65.0% |
1998 | 6.50% | $196,000 | $3,520 | $6,902 | 51.0% |
2008 | 6.85% | $452,000 | $5,071 | $8,077 | 62.8% |
2018 | 4.50% | $692,000 | $5,561 | $9,370 | 59.3%
|
(Source: finder.com.au, RP Data, ABS)
These numbers show us:
- It’s actually cheaper to buy today than it was in 2008;
- It is cheaper to own a home today than it was in 1988 (65% of household income) and 2008 (62.8% of household income);
- It was cheapest (on these numbers) to own a home in 1998 (51% of household income).
Between 1988 and today we have seen increased participation from females in the workforce (thereby increasing our household incomes), and lower interest rates (thereby reducing our mortgage interest repayments).
Some of you will be saying ‘wait a second, you said real estate in Australia has never been more affordable… it’s 8% less affordable than it was in 1998.’
Well I’m not done yet…
Before I show you why 2018 houses are most affordable, let me say that the headlines in today’s papers are grossly misleading. You won’t read a paper today that doesn’t mention unaffordable housing. These numbers show it’s more affordable to buy a house in Australia today than it was in 2008. Fact.
PAY ATTENTION HERE!
The thing is that there is one CRITICAL difference between the last 30 years and the current day 2018. This critical difference is not accounted for in the above numbers, and it is the emergence of the smart phone and the shared economy!
You can now rent out a room either permanently, part-time or casually on flatmates.com.au, Airbnb, Gumtree, and realestate.com.au.
I’ve got a friend who owns a 3-bedroom home with his fiancée. They don’t want a permanent roommate but instead rent their room out on Airbnb for anywhere between 1 and 7 nights a week. Some weeks they rent it out on the weekend, sometimes for a week at a time, sometimes not at all.
In the last year they rented their room out for an average of two nights a week at $150 per week. They then put that against their mortgage. Let’s see what that extra $600 per month does for their mortgage repayment as a percentage of their household income:
Year | Interest rate | House price | Repayment | Household income | Repmt: income (%) |
1988 | 15.00% | $120,000 | $3,771 | $5,800 | 65.0% |
1998 | 6.50% | $196,000 | $3,520 | $6,902 | 51.0% |
2008 | 6.85% | $452,000 | $5,071 | $8,077 | 62.8% |
2018 | 4.50% | $692,000 | $4,961 | $9,370 | 52.9% |
It makes their home ownership 10% more affordable than it was in 2008 and only 2% less affordable than it was in 1998.
That same friend is a carpenter. In addition to the Airbnb income, he is earning extra money via hire-a-hubby. He does a couple of jobs on a Saturday morning, and sometimes of a night after work. After expenses, he takes home $150 for the week. Let’s add that to their household income and see what it does to their mortgage repayment as a percentage of their household income:
Year | Interest rate | House price | Repayment | Household income | Repmt: income (%) |
1988 | 15.00% | $120,000 | $3,771 | $5,800 | 65.0% |
1998 | 6.50% | $196,000 | $3,520 | $6,902 | 51.0% |
2008 | 6.85% | $452,000 | $5,071 | $8,077 | 62.8% |
2018 | 4.50% | $692,000 | $4,961 | $9,970 | 49.8% |
It’s now 13% more affordable in 2018 than it was in 2008 and 1.2% more affordable in 2018 than it was in 1998!
This couple is not the odd one out. I have so many friends increasing their incomes via the shared economy today: From putting in some overtime work via remote desktop, helping someone load furniture into a van via airtasker, helping someone input data into a google sheet via freelancer, or selling some of their unused stuff for extra cash via gumtree. The list goes on, with new opportunities being added to the market every day!
This is just the beginning of the shared economy. It’s only going to become more accessible and convenient but we need to be prepared to design our homes to account for it (And this is exactly what we are doing in one of our latest developments) and we have to be willing to work hard for it.
Instead of banging on about how unaffordable our real estate is today, let’s focus on how amazing our opportunities are! We’re only going to have more opportunities in 2019 and beyond as the shared economy develops even further.
What opportunities do you seize in this evolving economy? Love to hear your thoughts.
