Is Housing more Affordable Now, than in the Past?

All we hear is that housing is completely over priced and has been getting worse over the past 50 yrs.  “It was once 3 times our average income but now it’s up to 6 times our average income”.  Everyone is worried about a huge collapse as affordability gets out of control.  My question to you, “Is it really that way, or is this just what the statistics are telling us?”.

Affordable Housing

Affordable Housing

I thought it might be appropriate to introduce some new statistics to challenge what we are being told.  So the ratio of income to property prices mentioned above has been going up every year for the last 40 years and will probably continue to do so.  Is it a good measure or is there something else?

Lets have a closer look at Income, Rent and the Cost of Buying as our measures.  So instead of looking at the value of the home lets look closer at the cost of buying which involves loan repayments, council and water rates, insurance and maintenance etc.  So now lets compare the cost of buying against the property prices over the last 27 years.  Even though property prices have gone up nearly 6 times the average income, the cost of buying has only gone up less then 2.5 times.

The increase in the cost of buying is substantially less than increases in personal incomes as well as the cost of renting.  In other words, relative to the incomes of Australians working full time, the cost of buying is significantly lower now than it was 27 years ago, and rents are also a lesser burden now than they were in 1986.

Now the cost of buying is driven mainly by the repayments required on the loan, which is the affordability.  It may be that even though property prices are higher, the average Australian is using more of a deposit to purchase and therefore lowering the cost of buying.  So property prices alone are not a really good measure of affordability.

So, if housing was affordable back in the 80’s, it’s even more affordable now.

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