There are people asking if property prices can continue to rise. While some conclude that they can’t, anyone even half tuned in to the media of late would have noticed the increasing commentary surrounding house prices being again on the rise.

Given I now have 12 properties I’m obviously ecstatic to hear such widespread confirmation of what I already “knew” was inevitable. While the laws of ‘supply & demand’ may be temporarily distorted by external events, such as the Global Financial Crisis (GFC), they are law and as such will come to pass; in my opinion and experience anyway.

History repeats itself and before long we will again hear an increasing number of people uttering comments like:

• “Property prices simply cannot keep going up”
• “Houses are unaffordable”
• “Australian house prices are over inflated”

I have converted pounds to dollars in the following comment from one of our clients just this week:

When we were married in 1953 our first home cost $7,000 and I earned $2,080. That represented 3.365 years wages to buy. Based on a median house price of $330,000 today (47 times that of 1953); and the average wage of $55,494 (26 times 1953 levels), it would take 5.946 years of someone’s wages to buy a house. Without further investigation, I’m not sure what this means.

I have no doubt that in time the media will be comparing the relationship between Australian house prices and wages to that of other countries; and again the question will be debated “Australian property prices cannot keep going up; can they?”

“Lies, Damned Lies And Statistics”

“Lies, damned lies and statistics” is part of a phrase attributed to the 19th Century British Prime Minister Benjamin Disraeli (or Mark Twain, depending on who you believe). Anyway, the point is that you can pretty much drag up statistics to support any angle you wish to promote (in much the same way as a property valuer who dislikes a certain property will always find those statistics he/she needs to support a low valuation; but that’s another story).

Back in September 2007 I wrote an article called “Is It An Affordability Crisis“. Did you know you can search and revisit well over 400 articles (or blogs) that we have on this website? >>>more

These educational articles cover a broad spectrum of valuable information and are an underutilised recourse in my opinion. Sorry for digressing again; back to my September ’07 blog “Is It An Affordability Crisis”. The motivation to write this came after I heard a commentator suggest that people’s increased expectations were more the issue today. Just less than a generation ago people understood that they had to start small and work their way up. “People have forgotten, or ignore, that the way to get to the finish is to begin at the start”, he said.

Let me repeat the essence of what I wrote back then.

I recently had a trip to Sydney to see ‘War of the Worlds‘ musical on stage; in the Acer Arena at the Olympic Village. This included a walk around Sydney’s historical ‘brick pit’. In the history of this facility, which produced the bricks to build Sydney’s houses for many years, the following facts from the year 1911 are displayed:

• A new home was £1,600 (pounds)
• The average wage was £220 per year

Considering this:

Back in 1911 the average home would have probably been a small terraced brick dwelling, with an outside area for a laundry and an outside toilet. Based on the above figures it cost nearly eight times the average wage and home ownership was limited to just 30% of the population.

Today, the average wage is somewhere between $52,000 and $54,000 per annum. Eight times that would be between $416,000 and $432,000; enough for most people to buy a home. The difference is that the home today would be bigger with an internal laundry and bathroom, an ensuite, perhaps a media room, probably a double garage, air conditioning, dishwasher and so on. It’s also worth noting that today around 70% of people own their own home and just 30% rent.

A sober debate on housing affordability must consider the (style and quality of) houses being compared and a broader snapshot of Australian house price vs. wage history!

My kids have repeatedly heard me speak of our ‘small beginnings’.

In 1973 we purchased house and land in Adelaide for $13,000. The $120 a month loan payments was such a struggle that we could not afford a concrete driveway. As such I spent the weekends cleaning old bricks to lay a driveway myself. Our black and white television was rented and sat on an “entertainment unit” that I built by running timber planks across concrete ‘Besser’ blocks.

At this point, those of you who remember the “We Were Poor” Sketch, by Monty Python, may expect me, in a Yorkshire accent, to say:

“House? You were lucky to have a HOUSE! We used to live in one room, all hundred and twenty-six of us, no furniture. Half the floor was missing”! Again I digress, but my point is to question whether things are really that much worse today or is it that our expectations have simply changed?

My son and his wife have been married only months. They recently bought a beautifully appointed two bedroom unit a few hundred meters away from us at Riverwalk in Robina. This is a great investment for a young couple starting out; certainly a much more convenient and comfortable set up than was possible when his mum and I were starting out. Of course, being 2009 and in his 20′s, Dylan has a flat screen TV an IPod and Xbox and all the other bits and pieces that young people expect now.

So is Australian property overpriced or are our expectations just that much higher?

Whether you are starting out or further on in your journey mrd is here  to support you in the pursuit of your financial goals. Every day clients are taking up Nick’s various complimentary and no obligation supportive offers. Would you like to have us look at your borrowing capacity to give you an idea of what may or may not be possible right now? If so just ask!

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To end with another Python quote: “But you try and tell the young people today that… and they won’t believe ya’.”

Happy Investing,

Martin Bell
mrd Customer Care Program… because investing is personal