I tried to save for a house once.
I was going pretty well too, until I realised that the average price of an apartment had more than doubled while I had my money locked away in a savings account. What was a perfectly acceptable deposit on the outset was laughable when the time came for me to actually use it. I bought a Harley and used the change to chase a girl I liked over to the other side of the world. I made friends, had adventures, got my dream vehicle and married the girl. The alternative? A crippling debt and an inferiority complex.
As it turns out, my adventurous financial attitude wasn't unique. I am one of many in my generation choosing to rent, travel, spend and enjoy their cash rather than be scrupulous.
A recent article in the Guardian on the topic of property ownership sent young Australians into a tail-spin. The headline 'Millionaire tells millennials: if you want a house, stop buying avocado toast' was all over my Facebook feed, in my conversations and even on the blackboard at a local cafe. The article summarised a 60 minutes interview with Australian property mogul, Tim Gurner. In the interview he shamed young Aussies for buying overpriced coffee and snacks, and then whingeing about not being able to afford a property. The uproar was widespread.
Further to his anti-avocado advisement, Gurner recalled his humble beginnings. He speaks warmly about starting his first business when he was 19, promoting an image of himself as a classic, hardworking, everyday Aussie. He worked from 6:30am to 10pm, 7 days a week, until he could afford his first property. Not a macchiato or slice of toast in sight... Apparently.
This image is fine, if you consider getting a $34,000 kick start from your grandad 'humble beginnings'.
WHEN OUR PARENTS ENTERED THE PROPERTY MARKET THEY WERE IN A MUCH BETTER POSITION.
The gap between average annual household incomes and average property prices has been growing for decades. It is clear, in the first graph, that it is getting incredibly difficult for current and future generations of Aussies to fill this gap with disposable income, or even posable income.
Information from leading Australian property website, domain.com.au makes it clear that the cost of apartments and houses has skyrocketed. Specifically in the period after the above graph ends in 2007, more specifically, while most Gen Y kids were starting to settle down and consider owning a home in their mid-twenties.
The most up to date information available from the Australian Bureau of Statistics states that the median Aussie household income in 2013, is $107,276 gross, approximately $77,500 after tax. According to Commonwealth Bank the household in question could borrow $298,600 assuming they had a 10% deposit and some extra cash to cover solicitors fees and expenses like removalists.
When I searched for a property that our happy average Aussie household could afford I came up with some real pearlers in NSW. There's the lovely demountable 2 bedder in a caravan park in Emu Plains - or - they could get excited about growing a family in the spacious studio in Gladesville (has one of those fold up closet beds).
The reality is, a reasonable price for a standalone house within 15km of Sydney is a confident $1.5m - That's a $150k deposit and $7,216 a month repayments on a 25 year loan (calculated here). Saving $150,000 won't be easy either, that equates to 3 long, avocado-free years of saving $500 a week, each, assuming you are in a stable couple.
Stop and think about it...
3 years of saving $1000 a week before rent, groceries, private health insurance, activities and let's just assume you haven't even thought about getting a car, adopting a pet, having anything unexpected happen or the ultimate budget buster, getting pregnant. Long story short, to have $500 a week spare after your deposit savings, for your combined expenses you will need to be on a minimum combined household income of $165,000 per annum. Thats $60,000 more than the Australian median household income. Saving this much every week, consistently, for 3 years is 100% effected by the amount of expensive coffee and avocado toast you want to consume. Gurner was right, how f***ing dull.
To our polyamorous readers, you're welcome. A triple or quadruple income household is a great way to get ahead.
There is nothing mind-blowing about explaining how hard it is to enter the property market. The growing gap between average household earnings and the average house price is turning in to an uncharted gulf.
Personally, I'll be off travelling, motorcycling and filling my face with avocados. At least until my grandad wins the lotto and palms me a deposit.