The GDP and wage growth figures that I've seen are that both grow at 3 - 4% per annum (on average). The cliché is that property doubles every seven to ten years (so a 7% to 10% growth rate).
Taking these together, property prices would double every ten to twenty years relative to income.
The cheapest property that I could find in the Melbourne area on Domain was a cabin at $39,000. Interest repayments will be around $3000 per annum at 7%.
I'm not sure of the median household income in Melbourne, but some figures from 2006 suggest just under $1100 per week, so around $60,000 per annum.
If house prices grow at 10% and salaries at 3% (i.e. doubling in real terms every decade) then that cabin would be unaffordable to anyone on a median salary in Melbourne in about 45 years. At 7% house price growth it would take 90 years.
Taking a more extreme example (around 3% growth in GDP, and 10% per annum in property prices) by the middle of the 23rd century that cabin would be worth more than Australia's GDP.
(See, you can't go wrong with property. )
Having worked through the mathematics, I can understand why long run studies have shown prices track inflation. And this puts me in agreement with Intrinsic_Value that something will limit growth.
Taking these together, property prices would double every ten to twenty years relative to income.
The cheapest property that I could find in the Melbourne area on Domain was a cabin at $39,000. Interest repayments will be around $3000 per annum at 7%.
I'm not sure of the median household income in Melbourne, but some figures from 2006 suggest just under $1100 per week, so around $60,000 per annum.
If house prices grow at 10% and salaries at 3% (i.e. doubling in real terms every decade) then that cabin would be unaffordable to anyone on a median salary in Melbourne in about 45 years. At 7% house price growth it would take 90 years.
Taking a more extreme example (around 3% growth in GDP, and 10% per annum in property prices) by the middle of the 23rd century that cabin would be worth more than Australia's GDP.
(See, you can't go wrong with property. )
Having worked through the mathematics, I can understand why long run studies have shown prices track inflation. And this puts me in agreement with Intrinsic_Value that something will limit growth.