Required for reading this post: maths level 2 or above.
I have written about house prices before, but then the other day I saw an interesting article on Yahoo news which I wanted to copy and paste onto my blog and claim as my own. Two things prevented me from doing this.
- Firstly, apparently it is illegal.
- Secondly, it was too professionally written for this blog.
So instead, I need to mash it up and tell it to you in my own words. So here goes.
The article asked “Is the Australian dream dead?” in reference to owning your own home. It discusses the cost of housing and looks at the affordability of it for existing homeowners and for the first time buyer getting onto the housing ladder here in Australia.
Now I can only talk about my experiences in my previous country, England, so I don’t know how this might compare with where you live. But the article was trying to make the point that it is now ridiculously hard for single income buyers. Let’s take a look.
Firstly, existing homeowners.
These were the median house prices across Australia’s five biggest cities rounded to the nearest grand as at 2009……
- Sydney: $577,000
- Melbourne: $492,000
- Perth: $475,000
- Brisbane: $452,000
- Adelaide: $379,000
Average annual earnings across the same five cities ranged from $65,000 a year in Perth down to $54,000 a year in Adelaide. The mortgage repayments appear to have been calculated at a cost of around $6.40 per $1000, 5.90%. As a 10% deposit had been assumed, the mortgage repayments ranged between $3,317 (Sydney) and $2,180 (Adelaide) per month.
They then talked about “Average total earnings needed to avoid mortgage stress.” According to their sources for this, mortgage stress is assumed to take place when your mortgage repayment exceeds 35% of your income. From here they could simply calculate how much you needed to earn a year to avoid that stress and therefore how many people would need to work (based on average annual salaries) to cover that mortgage.
The bottom line was that you would need 1.4 times one person’s salary to live in Perth or Adelaide, 1.5 for Brisbane, 1.7 for Melbourne and 1.8 times one person’s income to live in Sydney.
Let’s translate that to English. And England. Take the average weekly income. According to government statistics for 2008, men earn around £28,000 a year and women earn around £22,000. That’s nice and easy, so £50,000 between the two of them.
Using the same criteria, which is we do not want them to be paying more than 35% of their income on a mortgage and they have to put in 10% deposit, I calculate (at 5.90% interest, 25 year mortgage) they can afford to buy a house worth £250,947.
Now I may be a little out of touch, but I don’t think you’d buy much of a property in any of the equivalent places in England for that. But this is where it gets kind of murky. What is equivalent to these 5 top Australian glorious golden sandy beached seaside cities? Is it London, Birmingham, Leeds, Glasgow and Sheffield? They are the most populated. Or is it London, Oxford, St Albans, Brighton and Bath. They are probably the most expensive.
If you could buy a house in any of those places for £250,947, it probably wouldn’t be a four bed detached with double garage, as many of these are, with the possible exception of Sydney. Note also that to buy that house for £250,947 I have automatically assumed that two people will be paying for it. Not 1.4, not 1.5, not even 1.7 or 1.8 people, but a whole 2.0 people.
But what about first time buyers?
For first-time buyers it was assumed they would try to purchase their first property outside of the major cities. Here were the median prices for each of the five main states which seem to assume that nobody wants to live in Northern Territory or Tasmania.
- New South Wales: $331,000
- Western Australia: $330,000
- Queensland: $320,000
- Victoria: $291,000
- South Australia: $279,000
To avoid mortgage stress as defined above, all the above states required exactly 1.0 people’s incomes to pay off the mortgage apart from Queensland which required 1.1.
If I am not mistaken, for a first time buyer to purchase a property in England on their own AND avoid mortgage stress you would need to win big time on the lottery.
So I would suggest that if the Australian dream is dead, the English dream was buried years ago. Those Aussies, they don’t know when they’ve got it so good!
Confused? Me too. So here’s a conclusion: On the basis that first time buyers can still get on the property ladder here whilst earning “average” incomes; On the basis that whatever you do buy here is much bigger than the usual UK abode; On the basis that housing here up north (Northern territory was not looked at in those figures) is much cheaper here, just like in the UK; I still say…..
….for house prices, UK vs Australia, it’s got to be another victory for Oz.
A Yahoo article did have a more professional and thorough explanation of what you have seen here, but they have now taken it down. So this is all you’ve got! Apart from…..
I have revised my comparison to take into account property price fluctuations and the GBP v AUD exchange rates. You can read the new post by visiting…..