An an­swer to hous­ing af­ford­abil­ity

A din­ner con­ver­sa­tion played out all around Aus­tralia stirs de­bate about whether young peo­ple can af­ford a home.

Mt Druitt - St Mary's Standard (East) - - REAL ESTATE -

DAUGH­TER: What’s for din­ner?

Dad: Roast lamb and ve­g­ies. How was your day to­day?

Daugh­ter: We went to some house in­spec­tions. Dad: Find any­thing you liked? Daugh­ter: Yes, but hous­ing is so ex­pen­sive and un­af­ford­able.

Dad: Hang on. Be­ing ex­pen­sive and un­af­ford­able are two dif­fer­ent things. I agree that hous­ing is ex­pen­sive. It costs a lot of money to buy, but I don’t agree that it is un­af­ford­able. Daugh­ter: What? Are you crazy? Dad: Just lis­ten for a minute. When your mum and I bought our first house 30 years ago, I was on a be­gin­ning teacher’s salary of $12,000.

Daugh­ter: What? How could you live off that?

Dad: Things were cheaper back then. When we bought our first house, the me­dian house price in Ade­laide was $60,000.

Daugh­ter: $60,000 is im­pos­si­ble Dad, even for back then.

Dad: Be­lieve me, it was pos­si­ble. How­ever, in­ter­est rates were 17.5 per cent. It was a high in­ter­est rate and on top of that, if you wanted to bor­row money, you needed a 25 per cent de­posit.

Daugh­ter: But to­day in­ter­est

PETER KOULIZOS rates are only 4.5 per cent.

Dad: Cor­rect. With in­ter­est rates at 4.5 per cent, hous­ing is not as un­af­ford­able as you might think. To­day, a be­gin­ning teacher’s salary is $50,000, the me­dian house price in Ade­laide is $400,000 and you can buy a house with a 5 per cent de­posit. Daugh­ter: So, what’s your point? Dad: Thirty years ago, the de­posit was the equiv­a­lent of 15 months’ salary.

Daugh­ter: How did you work that out?

Dad: Well, 25 per cent of $60,000 is $15,000. I earned $12,000 over 12 months so $15,000 was 15 months’ salary. To­day, I only need a 5 per cent de­posit for a $400,000 house which equals $20,000. This is the equiv­a­lent of about five months of to­day’s salary. Daugh­ter: Go on. Dad: Thirty years ago, the an­nual in­ter­est on the mort­gage re­pay­ment was $7875 (17.5 per cent of $45,000) which was the equiv­a­lent of about eight months’ salary back then. To­day, the an­nual in­ter­est pay­ment for a mort­gage is $17,000 which is about four months’ salary.

Daugh­ter: Dad, I can see your point, but there’s just too much maths go­ing on. In 30 words or less, can you please tell me why hous­ing is not un­af­ford­able to­day?

Dad: Thirty years ago, you needed 15 months salary for the de­posit and the an­nual in­ter­est was eight months’ salary. To­day, you need only five months’ salary for the de­posit and the an­nual in­ter­est is four months’ salary. In other words, to­day you need less of your in­come to pay for hous­ing.

Daugh­ter: Well why does it seem so hard for me and my friends to buy a house?

Dad: You need to save some money. Daugh­ter: But I do, Dad. Dad: Yeah, to go over­seas and out with your friends.

Daugh­ter: Come on Dad, I’ve got money in the bank.

Dad: I’m sure you have. Any­way, enough of that, let’s have some dessert.

Daugh­ter: I can’t stay for dessert. Dad: Where are you off to? Daugh­ter: I’m go­ing out with my friends as we’re plan­ning our next trip to Bali. Dad: You don’t say.

— Prop­erty lec­turer and au­thor Peter Koulizos runs the­p­rop­er­typro­fes­sor.com.au

Op­pos­ing opin­ions on money spark ques­tions over hous­ing af­ford­abil­ity.

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