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The “great Australian dream” is – once again – under fire, and in a surprise to absolutely nobody I’d like to talk about it. A recent housing report has suggested that Australians now need to earn an annual income of more than $300,000 to embark on the journey of home ownership – a claim I’d like to dispute.
This has been gleaned from the analysis of over 22,000 property sales conducted by Suburbtrends in October, has purportedly established that median house prices are currently nine times the average annual income.
Reports this week claimed an income of $300,000 would be needed to afford property. In my experience, you can get by on far less.Credit: Dionne Gain
Employing the internationally recognised “median multiple” as its metric – a calculation involving the division of a market’s median house price by the gross median household income – the report indicates that Australia has grown to a median multiple of 9.1.
This figure implies that aspiring home owners would need to command an income of at least $301,769 to navigate the property market terrain successfully – which understandably has disheartened many people around the country who still hold tight to the dream of one day owning the roof that covers their heads.
As someone who works every day in the property space, it’s essential for me to demystify this consistent narrative of unaffordability.
Chief analyst and founder of Suburbtrends, Kent Lardner, has suggested the prospect of home ownership is gradually escaping the average Australian, especially for those without the proverbial “bank of mum and dad” safety net. The ability to save for a deposit while allocating a substantial portion, approximately 31 per cent or more, of household income to rental expenses renders the dream of property ownership an increasingly elusive one.
Home ownership need not be an unattainable goal; rather, it can be a well-executed journey when you practise good financial awareness.
Regional nuances further amplify this dissonance, with Sydney’s northern beaches setting an ambitious bar at $600,000 per annum as the requisite income for home ownership. The outer west and Blue Mountains region, in contrast, presents a relatively “more affordable” option at $283,333 annually.
Melbourne’s inner east requires a sizeable financial commitment of $428,833 yearly, while the Mornington Peninsula extends a more accessible entry point at $274,000 per annum. Brisbane and the Gold Coast offer a somewhat more palatable required incomes of $330,000 and $282,500, respectively, yet they still demand a significant financial investment.
Lardner’s call for effective policy solutions echoes the need to address the affordability crisis without exacerbating existing inequalities. He cautions against relying on strategies such as First Home Buyer grants and shared equity schemes, asserting that these initiatives may inadvertently contribute to long-term inflation in house prices, favouring sellers more than buyers.
In emphasising the importance of balancing supply and affordability, he suggested that the government should focus not only on increasing housing stock but also on promoting the development of affordable housing options, crucial for achieving sustainable affordability – and this is something I can not only agree with, but wholeheartedly get behind.
However, beyond the headline-grabbing figures and affordability concerns we’ve seen thrown around over the past few weeks, the gateway to home ownership actually hinges on a crucial factor – serviceability.
Cait Bransgrove, a broker (and my co-director at Zella Money) really drives home this point, emphasising that home owners seeking to refinance and prospective buyers face hurdles in the current financial climate.
Despite the prevailing cost of living crisis and elevated interest rates, securing a home loan is contingent on serviceability – essentially, the borrower’s ability to repay the loan – not just what they earn.
The recent decision by the Reserve Bank of Australia to raise the cash rate target further underscores the intricate dance between borrowers and lenders, one which mortgage brokers – who are responsible for orchestrating nearly two-thirds of all new residential loans in Australia – are becoming increasingly important. In a financial landscape where straightforward deals are becoming increasingly elusive, especially for first-time homebuyers, the role of a knowledgeable mortgage broker becomes pivotal.
Bransgrove suggests that instead of getting overwhelmed by the process, recruiting a broker early on in your journey to work closely with you can help you understand what hurdles you might be up against.
While $300,000 might seem like an intimidating financial threshold, the true key to unlocking home ownership lies in strategic financial planning, a nuanced understanding of serviceability dynamics, and support from a professional if needed.
After all, it’s what you do with your money that’s important, not how much you earn. In my previous career as a financial adviser I saw it all the time: those with average incomes retiring financially comfortably due to good financial planning, and those who earned big dollars who ended up with little to show for it at the end of the day.
As we navigate the intricate movements of the housing market, it is critical that we keep our heads screwed on and recognise that the real magic lies not in the headline figures but in the hands of informed borrowers, adept mortgage brokers, and a harmonious financial strategy.
Home ownership need not be an unattainable goal; rather, it can be a well-executed journey when you practise good financial awareness, strategic planning, and collaboration with knowledgeable professionals.
Victoria Devine is an award-winning retired financial adviser, best-selling author, and host of Australia’s number one finance podcast, She’s on the Money. Victoria is also the founder and co-director of Zella Money.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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