Regular readers of this newsletter would already know my thoughts regarding housing affordability. In my opinion it is more a case of current expectations rather than a lack of affordability.

Reinforcing my take on this subject was the release this past week of research showing that Australia has now overtaken the United States to have the largest average new home size in the world. While in the USA the average size of new homes have shrunk for the first time in a decade, due to global recession, average floor space of new Australian homes hit a record high of 214.6 square metres in 2008/09 financial year, according to official data.

When I hear the media and individuals complaining about how much more expensive housing is I often think of the new home we had built back in 1973. In that year, the median price for a house in Adelaide was $16,250. We built on land (at the cheap end of the market) for a total cost of just $13,000. Even so, I could barely afford this ‘huge debt’. Sydney’s median house price in 1973 was $27,400 and Brisbane’s $17,500; had I lived there I would probably have remained renting.

History & Inflation

Recently I received an amusing email that I thought offered some insight into history and inflation. From time to time you probably receive a postcard from your car dealer offering a special deal on servicing or something else; I know I do.

Well how about this one, a card posted from a Ford dealer in the US to a client back in 1928. NB: Click to enlarge image, if necessary.

How about that! A full set of pistons and rings for $7.00 with labour charges of $20.00 to $25.00 to “have your motor and transmission completely overhauled. That sure beats the $800.00 I had to recently spend to replace the AC fan speed controller for the SAAB; and that only covered the part.

Seriously, who back in 1928 would have believed that we would have to pay $800.00 to buy a part today? That’s inflation for you.

That lead me to think on what housing was like in 1928. Now the article I did some time ago pointed out that the average Sydney home cost £1600 in 1911 and the average wage was £200. So the average home cost 8 times the average wage (just as it does now in round figures) I could not find any record of just what you got for your £1600 in 1911 but I did find a bit about homes in the US in 1928, some 17 years later.

1928 floor plan shows two bedrooms on one end of the home with a bathroom attached to at least one of them (although unlikely in 1911). The average home cost “a few thousand dollars”.

The floor plan below is for a 1920′s Australian terraced home. Please note that it has:

- An outside laundry
- No toilet downstairs
- No media room
- No ensuite
- No two car garage
- No air conditioning

I also found some indications of Australian house prices over the years. (Source quoted was Residex)

• Appian Way, Burwood 1905: £1,500 – Today: $850,000
• Robertson Road, Centennial Park 1915: £1,800 – Today: $1,200,000
• Edinburgh Road, Castlecrag 1925: £2,000 – Today: $665,000

So… in writing this story I didn’t set out to offer some “deep and meaningful” message, rather offer some amusing figures and a bit of insight into the past. Remember it was Winston Churchill who said “The farther backward you can look, the farther forward you are likely to see”. I would like to point out, however, that property investing works for you both ways.

Property Investment Works Both Ways

1. The value of the property you hold increases (Capital Growth).
2. The value of the dollars you owe the bank decreases (Inflation).

By investing into property in the right areas, capital growth increases at a much faster rate than does inflation. Who would like to own that house I bought in 1973 and still owe the bank the original price of $13,000? I could put that on my Visa card now.

Time & Inflation

In March 2008 Nick wrote a really interesting article he called: “Time & Inflation – Why You Should Quit Fighting These Forces Of Nature”. I recommend you read (or re read) it >>>more.

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