In March 2010, just before Australian house prices peaked, 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.
This week, Commsec published the below chart showing that Australian housing is the most affordable in a decade, requiring only around 380 weeks on the average wage (just over seven year’s income) to buy a typical house. This is down from around 430 weeks average wages (just over eight year’s income) required to buy a home in 2008 and 2010.
While the improvement in housing affordability is clear, Australian housing still remains unaffordable compared with pre-2000 norms. According to Commsec, a typical Australian is still required to work some 90 weeks more to buy a house currently than was the case during the late-1980s peak or when mortgage rates hit 17% in 1989-90.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
