What if 2020 was as good as it gets for housing affordability? Forget gathering around to hear old man Jericho talk about the good old days when Gen Xers were able to buy into the housing market in 2000, or even the far-off time when Boomers could get a loan (provided they were male) to buy a home.
No. What if all of four years ago are “the good times” and those who have yet to buy look back with envy at those who were able to come up with a deposit – whether via luck or the bank of mum and dad – and got in when the going was good?
That is a horrific thing to contemplate and yet …
The latest housing price figures show the average dwelling price across the nation in December last year hit $933,800 – up 4.8% on 12 months earlier – compared with inflation of 4.1%:
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Given housing loans have been rising in the past six months, house prices were almost sure to follow, so this is not a great shock. And if the link between home loans and house prices continues, by June dwelling prices should be around 10% higher than they were in June last year:
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The price growth has not been uniform across the nation. Queensland, Western Australia and South Australia led the rest of the county by some way. In the December quarter, dwelling prices in WA jumped nearly 5%, and across all of last year they rose almost 13%.
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Since December 2019, dwelling prices in Queensland have gone up a massive 59%, while in New South Wales the 39% increase took the average dwelling price from $952,600 to $1,184,500, which is some $236,000 more than in the ACT, which is the second most expensive state or territory.
These figures, of course, are averages across the states and combine both established houses and apartments and other attached dwellings. The median prices (ie the point at which half the dwellings cost more and half cost less) for houses and attached dwellings in each capital city reveal the real horror of buying a house in Sydney.
In December last year the median established house price in Sydney was $1.36m and the median attached dwelling cost $780,000 – higher than the median house price in Darwin, Perth, Hobart and Adelaide:
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The boom over the past four years has mostly been for houses, but in all capital cities except Sydney, apartment prices have also risen quite sharply:
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But just think – the median price of a house in Adelaide since the end of 2019 has gone up 57%, in Brisbane 51%, and in Sydney 38%.
Across the nation in that same period, wages have risen 12% and average household disposable income has risen 16%.
That is not great for housing affordability.
It means that in 2020, before prices took off through the combination of a 0.1% cash rate and the homebuilder stimulus, the average dwelling price across Australia was equivalent to 13.5 times the annual household disposable income per capita.
That, of course, is a shocking enough number when you consider that at the turn of the century it was just 9.6 times, and was not far above the 9.1 times of 1990.
Those of course were the real “good times”, before the introduction of the capital gains discount in 2000 and the turbocharging of demand though the introduction of the first home owners’ grant and its doubling in 2001:
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But prices 13.5 times the average annual household disposable income now seem like a glorious moment of housing affordability. In December last year it hit 16.4 times.
In dollar terms, given the annual per capita household disposable income in 2023 was $56,782, if dwelling prices were only 13.5 times that instead of 16.4, the average dwelling price across the nation would be $766,562 instead of $933,800.
That’s a difference of $167,000.
I will at this point tell you to avert your eyes when I note that if the prices were equivalent to what they were in 2000, the average price would be just $539,400 – nearly $400,000 cheaper.
And as for paying off your loan, in December more than 7% of household disposable income held by Australians was going towards paying of mortgage:
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That is still lower than the peak of the pre-GFC period of 2008 but well above the pre-pandemic level of 5%.
And this, of course, is the cloud on the silver lining of having got into the housing market in 2020, when prices were much more affordable than now. Your repayments are likely to be a much greater burden than for those who bought in 1990 or 2000 to 2010.
The good old days of 2020 are good only relative to now, and that’s a rather horrific thought. With interest rates now some 3.5 percentage points above where they were in 2019, unless drastic measures are taken to increase supply and also reduce demand from distorting tax incentives like the capital gains discount and negative gearing, prospective homeowners will face not only a tougher time affording to buy a house but also to pay the loan.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
