Brisbane property - Three generations speak

[Andrew_A]

Listening to a round table discussion on property last night on the ABC radio in Bris.

Three generations of Australian women talked about their views on property prices in Brisbane presently, my thoughts in brackets.

Hellen Johnson 99yrs old:

* Earned 11 quid/fortnight in the education department in 1946, which was a very good salary for a women then. Had to resign from the job when you had a child. (I like collecting such stats on earnings)
* Bought a house with husband in 1946 for 1000 quid. They funded this with savings of a few hundred pounds and help from their family and a war commission loan.
* They didn't expect their house would be an investment.
* No such thing as 'modern housing finance' back in 1946.
* No furniture, No car, no dishwasher no built in wardrobes and ensuite. Hellen used to ride a bicycle everywhere for the first few years, expectations are much higher today than they were then.

Jan Rose: SKI Baby Boomer:

* In 1969 bought a house in Upper Mt Gravatt (nice) for 18k, 4 bedroom.
* Used an 11k deposit with a 33yr loan.
* All payments were done monthly, no options for fortnightly payment.
* Despairs at how her daughter will ever be able to afford a home, the children won't inherit money as she is a SKI boomer.
* Daughter is 21 and wants to live <6k from the Sydney CBD as she likes the lifestyle. (lol.. choices.. choices..)
* Noted that if her children wanted to live in Toowoomba instead of CBD Brisbane or Sydney then they could possibly afford a house. (Expectations have to budge when reality doesn't)

Emily Ford: Gen Y

* Early 20's, recently married with a baby on the way.
* Recently purchased (4 months ago I think) in Brisbane for 330-350, had to raise the budget as they couldn't find anything cheaper. Since they have purchased prices in the street/area have gone up 30k or so (go mini boom go!)
* Now or never was the idea for purchasing, as prices are moving so quickly.
* Very tough for people looking to buy a home today. (Sigh... Visit the history section of your library for a read and then tell me how tough you have it today.)
* Her same age friends had very high expectations of housing, looking for the 'perfect house' and a lot weren't prepared to compromise. Emily and her husband bought a house that needed a small bit of work, but nothing major.

* general consensus view that their is indeed a housing crisis today and something needs to be done as it's a basic human right that people should own their own home.

That's it!

 

[Peter Parker]

Hellen Johnson 99yrs old:

* Earned 11 quid/fortnight in the education department in 1946, which was a very good salary for a women then. Had to resign from the job when you had a child. (I like collecting such stats on earnings)
* Bought a house with husband in 1946 for 1000 quid. They funded this with savings of a few hundred pounds and help from their family and a war commission loan.
* They didn't expect their house would be an investment.
* No such thing as 'modern housing finance' back in 1946.
* No furniture, No car, no dishwasher no built in wardrobes and ensuite. Hellen used to ride a bicycle everywhere for the first few years, expectations are much higher today than they were then.

Let's multiply the above figures by 200 and assume that the 'very good womens salary' is equivalent to a roughly average wage today.

Pay: $2200/fn (or annually about $55k)
House Price: $200k
Savings: $60k approx, shortfall from family and war service loan

If we assume a dual income family (times above by 1.5) then the house price increases to $300k.

$200-300k is not too dissimilar to what can be purchased today in outer suburbs (either an established or project home), or a unit closer in.

So house prices appear to have risen in real terms (possibly due to easier credit and two income families) in the last 60 years but the rise is not as dramatic as many claim.

Peter

 

[Andrew_A]

Depends how you measure things.

In terms of weekly wage multiples the rise in medians has been large. Though the fall in multiples of such things as white goods and most consumer goods is also large.

Most of the raise in multiples appears to have come from the 1980's onwards though which would tie in with easier credit and recently the 'China price'.

I'm yet to be convinced that generation Y buying a first home have it harder than the boomers buying in 1946 though, in fact I think they have it easier today.

 

[Unit]

I think boomers would have found it impossible to buy in 1946. They would have been 1 year old at the most.

 

[Andrew_A]

Oh yeh. Good point.

That means it was the 'frugals'? buying.. Or the pre-boomers?

 

[Peter Parker]

Depends how you measure things.

In terms of weekly wage multiples the rise in medians has been large.

Comparing 'median houses' with wages is a rough indication of affordability, but in relation to first homes, the extent of dispersion of house price is also critical.

High dispersion is good in that it implies a good supply of cheap homes that provide opportunities for first homebuyers (ie anyone who wants to can buy).

Melbourne has everything from $180k Doveton commission homes to Toorak mansions. Adelaide's median is cheaper and also has a good bottom end for first homebuyers. So in these two cities at least, affordability is reasonable. People on modest incomes can't necessarily afford a majority of homes for sale, but they can almost certain afford something (whether people's tastes are too uppity to live in such cheapies is another topic!).

In contrast Canberra (and I think Perth) doesn't have much of a bottom end and, I suspect, less dispersion than Melbourne. So first homebuyer opportunities in such cities may be less than those with wider dispersion.

Secondly there is demographics. The baby boomer generation was more numerous than their parents. X & Y are about the same numerically as the baby boomers.

But more important is the ageing population.

In the 1970s and into the 1980s (when the boomers were buying homes) the proportion of people with mortgages was higher than the number who owned outright.

With an ageing population we have seen an increase in the proportion owning outright vis a vis those paying mortgages (ignoring 'equity mate' which may prolong mortgages).

The shrinking proportion of first homebuyers in the market may be as much demographics as affordability issues.

Also the market is driven more by 'upgraders' more than 'first buyers'. And since upgraders already have a home their equity position is strong and they thanks to liberalised lending they can borrow and buy much more.

I suspect that if Generation Ys were to pile their coins and save for a home, they'd have a harder time than a household 50-60 years ago when credit was harder. If they had to borrow it's easier to do that now with liberalised lending.

However freer lending is inflationary, which means that cash savers are punished. Perversely the only way that people can maintain the value of their assets is to continually borrow. Even if there is only modest growth this works since the value of debt owing is diminishing in real terms (assuming that CPI >0%).

Peter

 

[WillG]

* general consensus view that their is indeed a housing crisis today and something needs to be done as it's a basic human right that people should own their own home.

Surely its a basic human right for people to have a roof over their heads rather than 'own their own home'. This is a thing of the past

 

[Peter Parker]

Surely its a basic human right for people to have a roof over their heads rather than 'own their own home'. This is a thing of the past

I'd be very wary of saying that fit adults have a basic right to anything since it breeds an entitlement mentality.

Having said that, the economic system exists to serve society. Policy should ensure that there is fair reward for work and opportunities are reasonably available.

Peter

 

[keithj]

Depends how you measure things.

In terms of weekly wage multiples the rise in medians has been large. Though the fall in multiples of such things as white goods and most consumer goods is also large.

Most of the raise in multiples appears to have come from the 1980's onwards though which would tie in with easier credit and recently the 'China price'.

I'm yet to be convinced that generation Y buying a first home have it harder than the boomers buying in 1946 though, in fact I think they have it easier today.

Hi Andrew,

I appreciate your posts like these. In this case the ABC has offered 2 data points. If they'd found examples 3-4 years either side, it is likely to make a significant difference. Probably a v. similar difference, if the ABC had chosen to air the show in 2000..... or 2010?.

It doesn't help the GenYers who want a PPOR now, but as investors we have the luxury of waiting for better affordability.

Cheers Keith

 

[Andrew_A]

Hi Andrew,

I appreciate your posts like these. In this case the ABC has offered 2 data points. If they'd found examples 3-4 years either side, it is likely to make a significant difference. Probably a v. similar difference, if the ABC had chosen to air the show in 2000..... or 2010?.

It doesn't help the GenYers who want a PPOR now, but as investors we have the luxury of waiting for better affordability.

Cheers Keith

Yes, I suppose they would never have produced such a show complaining about affordability in 2000. Perhaps a coffee table of disgruntled property investors complaining about lack of CG?

To me the 'now or never sentiment' is interesting, sort of like the signs that used to appear in realo windows of the 'young man who waited for property prices to fall'.

 

[Andrew_A]

Actually just found this interesting excel data file of wages in Australia for anyone interested.

Wages from 1861-1968

 

[flatout]

The fact is that you can jump on the internet anytime and search for and find properties around Australia ranging in value from $100K upwards. No you won't find $100K or even $200K properties everywhere you look but there are still ample supplies of low value housing stock spread throughout most of the country. If you really want to own your own home and can't afford to buy where you happen to live, then you may need to make a choice. Do you want your own home badly enough to move somewhere where you can afford to buy???

This is exactly the decision that my husband and I faced back in the early '90's. We lived in an expensive part of the country where the cost of housing both to buy and rent was very expensive and wages relatively low. We knew that if we ever wanted to get ahead we had to "get out" and get a start somewhere else that was within our financial means. It wasn't an easy decision but one that we have never regretted. Incidently, we could now easily afford to buy a house back "home" if we ever decided to go back. We weren't unique, the majority of my school-mates made the same decision and funnily enough, 20 years after graduating many of them have now returned with their own families having been able to purchase a home and are enjoying a good lifestyle.

Just about everyone who lives in Australia could look back into their family history and see examples of this among their forebearers. The free settlers who colonised this great nation all left their home countries, family and friends knowing that in all likelihood they would never see them again, and headed for Aust. where they hoped they could build a better life for themselves. Let's face it, in the UK at that time all land was owned by the blue bloods. Ordinary, hard working folk had no chance of owning their own home. First, second and even third Aust. born generations continued in this vein, pushing further and further into the unsettled parts of the country once land and opportunities in around the main colonies dried up. My great grandfather and five of his siblings (with and without spouses) all left Vic for a time and headed to WA during the gold rush era all looking to get ahead. All but one eventually went back to Vic and all of them returned home with enough money to get into homes.

After 200 years of settlement, have we as a nation finally lost that spirit of endeavour? Are our younger generations so self-absorbed and dependant on instant-gratification that they just don't have what it takes to get ahead? Sadly, I think this is the case for the vast majority who just aren't prepared to put in the hard yards. Careful we don't become a nation of whingers!

Flatout.

 

[rambada]

I believe that the current generation has to high an expectation - they wont settle for 3 brm, single bath with carport. It has to have media room, DLUG, 4brm, office, cable, air, granite, etc & be close to CBD. And dont forget the new car!
We can all relate to our first home purchase - it felt like to much money at the time & we had to compromise on our expectations & sell our favourite car/toy. But we got in.
Also there are so many people who dont want to add value, ie they want a complete package polished product. Large project builders are catering to this ie Divine homes on the Gold Coast - 4 bdrm, DLUG, fully landscaped, air, fences, & $7k to help with costs during construction for $350-375k. Not bad! An yet there are cheap properties which need renovating available - I know as I buy them.
Also when we started, our parents helped us, only financially in a small way but also psychologically - but it made all the difference. The same with the elderly lady on the ABC.
It is just a time of head bashing & conditioning - ie part of the normal cycle. Housing affordability will improve & first home buyers return to the market once the financial cycle moves on and expectations become more realistic.