Housing Attainability vs Housing Affordability
By Guest Blogger, Peter Koulizos, property lecturer and author www.thepropertyprofessor.com.au
Now that property prices have stopped escalating and the hype about housing affordability has died down, it is a good time to analyse one aspect of housing affordability which I refer to as housing attainability.
Property commentators all over the world have slightly different perspectives about housing affordability. When I look at housing affordability, I consider two separate components; housing attainability and housing affordability.
Housing attainability is the ability to get into the property market. This is all about getting a deposit for a house which is based on your income and house prices and the requirements of the bank. Housing affordability can be referred to as people’s capacity to pay off a mortgage once they have bought the property. This is mainly based on income and mortgage repayments.
So as to provide some perspective on this topic, I am going to consider housing attainability in 1984 and today. Why have I picked 1984? That is the year we bought our first home.
In 1984, I was on a beginning teachers’ salary of $12,000. At this time, the median house price in Adelaide was $60,000. Back then, banks required a 25% deposit. This meant that we needed a deposit of $15,000 so as to buy a $60,000 house. In other words, as first home buyers in 1984, we required the equivalent of more than one years’ salary (15 months) as a deposit on a median priced house.
Let’s now fast track to 2018.
In 2018, a beginning teachers’ salary is $60,000 and the median house price in Adelaide is $460,000. Today, most banks are willing to lend money on an owner occupier home if they have a 5% deposit. Based on these numbers, you would need $23,000 deposit to buy a median priced house in Adelaide. This is the equivalent of about 5 months’ salary.
I know that there are other costs involved in buying a house such as stamp duty and mortgage insurance but I am just trying to keep the numbers simple so as to illustrate my point.
So, just to summarise where we are at:
In 1984, the deposit needed to buy the median priced house was the equivalent of 15 months’ salary.
In 2018, the deposit needed is about 5 months’ salary.
This is obviously just my personal example and things would be different in each state due to different house prices. The sort of wage you earn would also change the numbers slightly. You can do your own sums based on your own (and parents’) experiences or you could access freely available data from the ABS and other sources and use average Australian wages vs Australian median house prices. Either way, the scenario will be similar – you need proportionally less of your income today for a deposit on a house than you did in the mid-1980s.
So, why do so many people have difficulty saving a deposit for a house? Well, that would be a good article for another time!
Peter Koulizos, property lecturer and author – www.thepropertyprofessor.com.au