THE COST OF HOUSING
I don’t know how it is for you guys in the America (most of my traffic comes from you guys and gals) but here in Australia the cost of housing has gotten to a point where it is ridiculously expensive. I remember when I left school and had been working for a few years in the late 90’s you could buy a house for $150,000. My income as a low level government employee was around $40k at the time. So that’s around 4 x my annual salary to buy a house. A pretty cool house with 3 or 4 bedrooms and a back yard.
Fast forward to 2022 and that same house is basically $800k or more, yet my salary doing the same job is around $70,000. So house price increases had tracked close with wage growth we should have the same house costing around $280,000 (remember the 4x annual salary comparison). Now it’s over 10 x the annual salary at $800,000. When you think about it like that a house is now closer to 3 x as expensive even after you adjust for wage growth than it was 25 years ago.
What happened here? Foreign Investment? Government dragging their feet on releasing land? More red tape? Rising material costs? Supply and Demand? Probably a combination of all of those things really. The interest alone (whist we at the lowest point ever) is around $300 a week therefore to pay it off you’d be expecting to pay around $700 a week … Bear in mind this will increase as interest rate rises start taking effect. After tax and a couple percent interest rate rises this will pretty much be YOUR ENTIRE SALARY. Think about that. It was never really more than half of a salary back then (even at interest rate peaks)
If you’re basically putting in all your salary to pay down a loan in 25 years (assuming of course that you don’t redraw, default or anything in that 25 years) are you actually even living a day in your life during the course of your mortgage? When did owning a house become more important than life itself? I think there’s a general feeling of “Why the fuck bother?” amongst Australians aged under 40? To be honest, I don’t blame them either. Why spend your whole life in debt, just to pay it off when you’re 70? (Again, assuming nothing goes wrong in that 30 years or you don’t redraw or re-borrow or anything). Most of us will be too old to enjoy our houses or financial freedom by then.
A fair percentage of people going into this level of debt will never pay it off. They’ll either die, default, loose it in a divorce or perhaps not be able to even work long enough to pay it off. Let’s face it, not all of us will be in good physical shape when we’re 70. Many manual labourers, tradesmen etc… can’t work past the age of 55.
That said, with the cost of housing vs how important is owning a house now? Is it more of a financial anchor around your neck? A lifelong burden or can you pay one off comfortably? Hopefully the looming crash I referred to in the last article knocks these prices around a bit. I already own my flat but I’m hoping someday my son will know the same pleasure. The way things are at the moment I seriously doubt it.
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