What does "affordability" mean to you?

[hobo-jo]

I know, I know another "affordability" thread

But seriously I am interested to find out whether we can reach a 'general consensus' on what makes property in Australia affordable or unaffordable.

It seems there are some on here that are happy to keep moving the yardstick as time goes on, so I wonder just how far that yardstick has to go before we all agree that housing is unaffordable in Australia.

Obviously one contributing factor which has allowed us to move the measuring stick is the availability of credit. But should we really be basing affordability on a factor which can easily change... what happens if we get 10% interest rates and lack of buyers sees prices fall dramatically, does that mean the housing was unaffordable to begin with or did it become that way once the interest rates moved? Do we need to factor in available LVRs, interest rates and such into a calculation that tells us whether property is affordable or can we rely on a more conventional measure, such as household income vs prices?

It seems like some users think housing is affordable as long as there is someone that can pay for a house, even if they have to go interest only on the mortgage, swap their car for a pushbike, eat two minute noodles for breakfast lunch and dinner, never go out, sell the flatscreen TV and give up all other financial liberties just to do it...

 

[RumpledElf]

Mr & Mrs Joe Median being able to afford the median house. Mr & Mrs Low Income being able to afford something basic on the fringes or something regional, and Mr & Mrs Very-Well-Off being able to afford something really nice or in a really fancy suburb.

Not the case where its only the high income earners who can buy that dive on the fringes, while renting something nice in a fancy suburb from someone who bought it 20 years ago, and everyone else either has to rent or has already bought something back when it was cheap and hasn't left the property market since.

So in essense, people being able to buy something befitting their 'station', and that's going to open a debate about entitled GenY's wanting the best of the best as their first house.

 

[Monopoly]

Obviously one contributing factor which has allowed us to move the measuring stick is the availability of credit. But should we really be basing affordability on a factor which can easily change... what happens if we get 10% interest rates and lack of buyers sees prices fall dramatically, does that mean the housing was unaffordable to begin with or did it become that way once the interest rates moved? Do we need to factor in available LVRs, interest rates and such into a calculation that tells us whether property is affordable ...

Affordability for me is defined by whether or not I can pay for my purchases, whether it is a house or a pair of shoes. Of course, because a house is a tad more involved (derrr ) a great deal more is at stake, ummm...like my livelihood!!! So I wouldn't dream of not covering myself for unexpected surprises!! You'd be insane to over extend your borrowing capacity, cutting things so fine that you leave yourself absolutely no wriggle room!!!

You need to factor in several rate rises (not just +1) to give yourself that buffer in the event that things change and RBA decides to slip a couple more in, especially that one so often left in your Christmas stocking!!!

It seems like some users think housing is affordable as long as there is someone that can pay for a house, even if they have to go interest only on the mortgage, swap their car for a pushbike, eat two minute noodles for breakfast lunch and dinner, never go out, sell the flatscreen TV and give up all other financial liberties just to do it...

Sounds like a plan to me....where's the problem???

 

[sammyla]

For me a house is affordable when you are not spending more than 30% of your income on mortgage payments.well its not the case in Australia even filthy dumps are way overpriced.

A lot of people say two incomes can easily pay a mortgage.true if you do not want kids or have no life but paying off your house.

 

[BuildingBlocks]

For me a house is affordable when you are not spending more than 30% of your income on mortgage payments.well its not the case in Australia even filthy dumps are way overpriced.

Where did the 30% come from?

What constitutes overpriced?

 

[Ocean Architect]

Affordable, to me, means simply being able to afford it based on your income.

However, "reasonably affordable" to me means that a person, whatever their income, can purchase something in line with their means (ie someone with a very entry level job should be able to get something basic, a top CEO can afford a very affluent house etc) in a way that I think is fair.

To be honest, I don't think that housing in Australia is "reasonably affordable", because most people have to commit to a pretty tough mortgage for 30 years in order to pay the place off. I don't think it's reasonable for people to have their financial lives dictated by the state of their mortgage for the majority of their lives. I don't think it reasonable that a pile of steel and concrete on a standard block of land is worth the majority of your pay packet for 30 years of work.

So yes, therein lies the distinction for me. I personally hope that prices come down significantly, but in line with that, I also hope that prices for tradies come down also. It isn't at all fair to me that a painter can get paid as much as a doctor, or more.

 

[sammyla]

Where did the 30% come from?

What constitutes overpriced?

Ok its 30-35% that's the commonly accepted figure in most advanced economies.

Now i wouldnt go buy this dump for 400k?

http://www.realestate.com.au/property-house-vic-dandenong-107084583

Or this for 459K?

http://www.realestate.com.au/property-house-vic-dandenong-107316186

Look at them, they look so bad i wouldn't even go inspect. if they look this bad on pictures imagine seeing it for real!!!This is 33 Kilometers from Melbourne CBD

Now you might ask why do i want a 3 or 4 bedder?
Ok look at the crappy 2 bedder

http://www.realestate.com.au/property-house-vic-dandenong-107254457

Not overpriced eh?

Buy these dumps? Well i say HELL NO!!

 

[HiEquity]

Housing is affordable if someone can afford to rent it, firstly. If a single person's income can support the rent on a single room in a dwelling within one hour's transport from their workplace. Flat screen is not required, nor is a computer and noodles are just fine...

If we are talking about purchasing, that's not relevant to affordability as there is nothing that says we should all be able to afford to buy our own houses. If that were the case there would be no opportunity for investors - it would be a clear case of "market failure". A preposterous proposition.

In the purchasing market, where the question is not relevant anyway, housing is affordable if someone can buy it. That is, if it sells. Obviously if the person who bought it couldn't afford it then they wouldn't have bought it. Pretty obvious really...

It's "unaffordable" if it doesn't sell - which means no-one could afford it. So the price may need to be reduced - and so on. So while properties are selling they are not unaffordable by definition. The fact that certain individuals may not have sufficient financial means to buy them is totally irrelevant.

 

[Belbo]

Oooopppps!

 

[Intrinsic_Value]

It seems like some users think housing is affordable as long as there is someone that can pay for a house, even if they have to go interest only on the mortgage, swap their car for a pushbike, eat two minute noodles for breakfast lunch and dinner, never go out, sell the flatscreen TV and give up all other financial liberties just to do it...

I totally 100% agree with you hobo.

Affordability does not equate to a 'mansion' or an inner city house.

But it does equate to being able to buy something reasonable (maybe a unit in the inner city, a house in the middle/outer rings) etc etc, and on a medium income level.

But whatever opinions are posted, the fact remains, that its not opinions given on Somersoft (or anyother forum) that will determine the validity of the arguments (either for or against)

The market will work things through in its own time.

 

[Intrinsic_Value]

Mr & Mrs Joe Median being able to afford the median house. Mr & Mrs Low Income being able to afford something basic on the fringes or something regional, and Mr & Mrs Very-Well-Off being able to afford something really nice or in a really fancy suburb.

Not the case where its only the high income earners who can buy that dive on the fringes, while renting something nice in a fancy suburb from someone who bought it 20 years ago, and everyone else either has to rent or has already bought something back when it was cheap and hasn't left the property market since.

.

actually in my opinion, this is what i was trying to say, but in much better wording.

 

[DEC]

Ok its 30-35% that's the commonly accepted figure in most advanced economies.

Now i wouldnt go buy this dump for 400k?

http://www.realestate.com.au/property-house-vic-dandenong-107084583

Or this for 459K?

http://www.realestate.com.au/property-house-vic-dandenong-107316186

Look at them, they look so bad i wouldn't even go inspect. if they look this bad on pictures imagine seeing it for real!!!This is 33 Kilometers from Melbourne CBD

Now you might ask why do i want a 3 or 4 bedder?
Ok look at the crappy 2 bedder

http://www.realestate.com.au/property-house-vic-dandenong-107254457

Not overpriced eh?

Buy these dumps? Well i say HELL NO!!

Whats wrong with this 4 bedroom place with dev. potential for $110k less?
http://www.realestate.com.au/property-house-vic-dandenong-107207250

or this 2 bedder unit for $80k less? http://www.realestate.com.au/property-apartment-vic-dandenong-107211269

Are you to good for them?

 

[tcocaro]

The dictionary definition is fine with me;

that can be afforded; believed to be within one's financial means

I can only assume your question has more to do with the use of the word "affordability" in the phrase "affordability crisis" as it applies to property in Australia.

Therefore I will try and express "affordability" in such a context in my own words;

"Where a large/significant percentage of people whether it is, students, families, singles, parents, sons, daughters, workers, pensioners, renters or people with 2 legs, 1 leg or no legs want to buy into property of choice but cannot and therefore are forced to rent or purchase in areas not suitable for them"

It does NOT mean someone on a low income cannot "afford" to live in vaclause. It simply means they cannot afford to live in suitable accommodation and must settle with options such as renting or inferior options such as 2 hours drive out of Sydney.

Many snobs think its a case of wanting more than they can "afford" sorry but thats wrong. And also people think just because there are no shanty towns then they are "Affording" elsewhere but thats also wrong, they are renting mostly or driving insane distances or simply going into department of housing\rent assistance or living at home longer.

So the question is do (we) the ever shrinking number of people who can afford ignore the growing number of people who cannot. Do we keep placing a lob sided priority on NIMBYs wanting to protect their 1500sqm blocks from being developed just because they think having more people move in will cramp their style or lower their home values? .... Or do we start seeing affordability for what it is... a real problem facing Australia.

I know, I know another "affordability" thread

But seriously I am interested to find out whether we can reach a 'general consensus' on what makes property in Australia affordable or unaffordable.

It seems there are some on here that are happy to keep moving the yardstick as time goes on, so I wonder just how far that yardstick has to go before we all agree that housing is unaffordable in Australia.

Obviously one contributing factor which has allowed us to move the measuring stick is the availability of credit. But should we really be basing affordability on a factor which can easily change... what happens if we get 10% interest rates and lack of buyers sees prices fall dramatically, does that mean the housing was unaffordable to begin with or did it become that way once the interest rates moved? Do we need to factor in available LVRs, interest rates and such into a calculation that tells us whether property is affordable or can we rely on a more conventional measure, such as household income vs prices?

It seems like some users think housing is affordable as long as there is someone that can pay for a house, even if they have to go interest only on the mortgage, swap their car for a pushbike, eat two minute noodles for breakfast lunch and dinner, never go out, sell the flatscreen TV and give up all other financial liberties just to do it...

 

[Cupcakes]

The general rule is 30/40. Housing should cost no more than 30% of income for the bottom 40% of income earners. Past that point you go into affordability stress. I think if you're a high income earner you can probably choose to spend a larger proportion of your income on housing as a luxury.

I think some of the arguments on the forum against this issue include
-move to a rural area
-move to an outer suburb
-move to a cheaper suburb
-move into a caravan

But the fact is sometimes the cost of the above is still too much for the people living there! Some of these options have real disadvantages for families such as higher crime rates, fewer job opportunities, poor access to schools, public transport and hospitals...all of which compound inequality. The fact that the cost of living and the cost of housing continues to outpace incomes is a real and growing problem.

 

[Ridin-High]

note* I'm not an owner occupier.

I have two work friends who i have abit of insight into their incomes/houses (prices paid etc)

Very similar incomes,age,house price

They both earn 85-95k P.A, single income, wife, 2 children, early 30's, purchased house in sydney after boom (2005ish), 280-300k purchase price, both owe around 150-190k on places.

This shows that

- probably have mortgage paid off in full by the time they are 40-45yrs old (10-15yrs less then what some pundits claim it will take them)

- Imagine the power of DINKS (dual income no kids) to smash the debt, a real life example from my work place, one dude on 80k his wife on 50k, they purchased place for 370k (2.84 x combine annual income). This is a couple that are 22/23 yrs old.

with the dinks example imagine this considering 90% LVR, minus 7k FHOG + all outgoings (rates, insurance, maintenance, 7.5% I/R) it costs them $1057 per fornight, this isn't even half of the husbands take home fortnightly pay.

I agree with you hobo that 10% interest rates would of course effect affordability and have an effect on house prices.

I have had one work collegue have abit of a winge about interest rates going up alot in a row (indiain dude who purchased when rates were at about 5%), but this had led to him becoming more thrifty (paying down credit cards and other high interest debt) and now his wife works its no drama's at all.

Apart from charts and economists, i listen to the dudes at work they are a good gauge as to whats happening (they have no self-interest in shares going up, house prices going up, gold/silver prices). At the moment they are paying down debt, lessening exposure to expensive debt (credit card, personal loans)

Regards,

RH

 

[joanmc]

I think affordability is actually a subjective thing. It is really a function of what are you prepared to give up to get what you want. Also with housing I think it really goes to the core of who people think they are.
for example, I think I am a large property owner (100+acres) with a fabulous house (500m2) and a live-in maid and farm manager- that is where I think I should be.....but the reality is I have a 350m2 home on 5 acres. Now I could probably get the other but I would have to sell all my rentals, borrow a sh*tload more money and send hubby off to the mines. I don't want to do that -so I can't afford it.

I think that in a lot of people's heads the reality of what they can afford is at odds with who they think they are, so they bleat on about property being unaffordable. You just have to listen to the responses.
"I don't want to live there"
"Why should I go where it isn't safe"
"It isn't worth giving up my social life to be a slave to a mortgage"

These are all personal value judgements, and everyone views affordability through their own set of those.

 

[Monopoly]

The question posed in the title of the thread was:
What does "affordability" mean to you?

I answered from my own personal perspective, I didn't realise I was required to comment on how I perceived "affordability" for the rest of the country's buyers and/or renters!!

I agree "affordability" or more to the point, "housing affordability" is subjective even though as a nation we are reminded almost daily of its current state of play!!

 

[willair]

... what happens if we get 10% interest rates and lack of buyers sees prices fall dramatically, does that mean the housing was unaffordable to begin with or did it become that way once the interest rates moved? .

Good question,when i started the rates were above 18%,back in the early 1980's,the media did not pump and dump useless data on the investing public as much back then as the they do in these modern times,HOBO-JO what you have to do is see through all the media hidden agendas-- rates-house prices---gold above 2k per once,oil above 150$$ a barrel,the question you are asking can't be answered ,rates will rise to what levels depends on inflation,and the 80-20 rule,80% do all the work while the 20% live off what the 80% slave to become and nevewr make it..

I have seen this leadup in prices on all fronts 3 times in my investing life, the only problem is no one knows,if you do start selling your idea's at least you have some idea,unlike so many who sell dreams..

 

[skater]

Mr & Mrs Joe Median being able to afford the median house. Mr & Mrs Low Income being able to afford something basic on the fringes or something regional, and Mr & Mrs Very-Well-Off being able to afford something really nice or in a really fancy suburb.

So in essense, people being able to buy something befitting their 'station', and that's going to open a debate about entitled GenY's wanting the best of the best as their first house.

I think this is an extremely good example of affordability. The problem is that many times you have someone on a low income believing they should be able to afford something more.

Now i wouldnt go buy this dump for 400k?

http://www.realestate.com.au/property-house-vic-dandenong-107084583

Or this for 459K?

http://www.realestate.com.au/property-house-vic-dandenong-107316186

Look at them, they look so bad i wouldn't even go inspect. if they look this bad on pictures imagine seeing it for real!!!This is 33 Kilometers from Melbourne CBD

Now you might ask why do i want a 3 or 4 bedder?
Ok look at the crappy 2 bedder

http://www.realestate.com.au/property-house-vic-dandenong-107254457

Not overpriced eh?

Buy these dumps? Well i say HELL NO!!

And this is a good example of the person believing they should be able to afford something more than they can. There is nothing wrong with these homes. OK, they are not new, but they are clean and appear well maintained for the age they are. They are not dumps. They are good examples of the average home in many average suburbs. They may not be the dream home, but over the years each owner will likely make changes to suit their own personal tastes.

Similar homes to this would sell for much, much more than the quoted prices if they were near the CBD, and less if they were at the outer edges. The thing is, if you want to be close to the CBD you need to be a higher income earner. Not everyone is EVER going to be a high income earner.

I think that in a lot of people's heads the reality of what they can afford is at odds with who they think they are, so they bleat on about property being unaffordable. You just have to listen to the responses.
"I don't want to live there"
"Why should I go where it isn't safe"
"It isn't worth giving up my social life to be a slave to a mortgage"

These are all personal value judgements, and everyone views affordability through their own set of those.

This is excellent also. Young Gen Y grows up in expensive suburb, but is not a high income earner. Complains that housing is unaffordable because they won't move to where they can afford to because in their mind they are too good for the suburbs they can afford to live in.

 

[joanmc]

Is that a dig at me Monopoly? lol I maybe didn't explain what I meant well. I still think affordability is a function of what you are prepared to give up to get what you want.
e.g.
person A likes to have a facial and pedicure every week at a cost of $100, this makes her feel good and results in better relationships with her family as she feels pampered, BUT they never eat out as a family.

person B likes to take their family out for a meal once a week for a cost of $100 where they spend time time talking and catching up which results in a better family relationship, but she never goes and gets a facial.

Person A looks at person B and says "she's lucky, I can't afford to take my family out every week"

Person B looks at person A and says " she's lucky, I can't afford to spoil myself every week"

They both have that $100 a week and both think they can't afford what the other has.

Of course, person C says " I can't afford facials or dinner out- but I am buying a house"
To each their own.