How well has your salary kept up with house prices?

You’ve probably noticed that house prices in Australia consistently outstrip growth in wages. But by how much? And what can you do to make sure you’re not forever chasing the great Australian dream?

Each generation faces its own unique set of challenges (and opportunities!).

And for the current crop, one big challenge can be breaking into the property market. Especially when you’re competing against older generations that have had at least a decade (or two, or three) headstart on the property ladder, and considering the significant changes in property values over the past decade.

That’s not to say it can’t be done. Far from it. But it does require good planning, discipline, and motivation to stick to a plan.

Because historically speaking, and as you’ll see below, the longer you leave it, the harder it is to keep up.

Housing Affordability Overview

Housing affordability is a significant concern in Australia, with rising house prices and stagnant wage growth making it challenging for many individuals and families to purchase or rent a home. The housing market in Australia is characterized by high demand and limited supply, particularly in capital cities such as Sydney and Melbourne. This has led to a surge in property prices, with the average house price in Australia exceeding $920,100. As a result, housing affordability has become a major issue, with many first-home buyers and low-income families struggling to enter the market.

How much have house prices grown compared to wage growth?

Over the past year there was a 2.2% annual increase in the Australian wage price index (WPI) – just short of the decade average growth of 2.4% – according to the Australian Bureau of Statistics.

Meanwhile, Australian housing values have jumped by more than 20% over the past year.

But hey, that’s just one year – and an absolutely bonkers year at that. Moreover, fluctuating interest rates have also played a significant role in home loan affordability and borrowing behaviors over the years.

Let’s look at the trend over the past two decades to give us a clearer picture.

Over the past 20 years, wages have increased 81.7%, while Australian home values have grown 193.1%, according to this CoreLogic cumulative growth graph, reflecting the disparity between house prices and average income.

And here’s a state-by-state breakdown. Additionally, household incomes have struggled to keep pace with rising property prices, making it increasingly difficult for families to manage housing costs. As you can see, Tasmania has the biggest disparity between wages growth (79.6%) and house price growth (294%), followed by ACT, Victoria, NSW and then Queensland.

Income to Price Ratios: A Key Indicator

Income to price ratios are a crucial indicator of housing affordability in Australia. The ratio measures the average house price as a multiple of average household income. According to CoreLogic, the income to price ratio in Sydney is 8.4-times, while Darwin has the lowest ratio at 4.7-times. This indicates that housing affordability varies significantly across different regions in Australia.

The Reserve Bank of Australia has noted that the increase in housing prices has outpaced the increase in incomes over the same period, leading to a decrease in housing affordability. As a result, households are spending a larger proportion of their income on housing costs, making it challenging to maintain an acceptable standard of living.

What does this mean for your next property purchase in terms of housing affordability?

In short? It’s becoming tougher to save for a house deposit. One of the contributing factors to this challenge is the limited housing supply, which has not kept pace with the growing demand, particularly in major cities.

In the year to October, a 20% deposit on the median Australian dwelling value has increased by $25,417 to a total of $137,268, according to CoreLogic

“With wages increasing just 2.2% in the year to September, it is difficult for household savings to keep up with this kind of increase,” explains CoreLogic’s Head of Research Eliza Owen.

“​​This tends to lead to less demand from first home buyers through periods of rapid property price increase.

“Another important implication of high house prices relative to subdued wages growth is lower purchasing power when it comes to mortgage serviceability over time.”

So what can you do about housing supply?

Well, besides demanding a big pay rise from your boss, rest assured there are a number of options at your disposal.

For first home buyers, most states offer grants and stamp duty concessions/exemptions to help give you a leg up.

There’s also a number of federal government options, including the popular First Home Loan Deposit Scheme and New Home Guarantee initiatives, which on average enable first home buyers to make their home purchase 4 to 4.5 years sooner.

That’s right – 4 years sooner!

Then there’s the First Home Super Saver scheme, which allows you to save money for a first home inside your superannuation fund, which helps you to save faster due to the concessional tax treatment that super offers.

And for those of you looking to purchase an investment property, rest assured that there are ways to leverage the equity in your existing property to help you grow your portfolio.

So if you want to become less dependent on your annual wage for your wealth and retirement, and more invested in property, get in touch today.

We’d love to sit down with you and help make a plan to suit your current situation.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.