If you want to own property, get a significant other first

We constantly hear different numbers thrown around about how much it costs to purchase a home compared to incomes, this week we’re going to put some simple science behind it.  The table below details the average weekly earnings of a person in each state as at November 2009 based on data released this week by the Australian Bureau of Statistics.  We have also annualised the results to show how much that equates to over a year.

Average personal income and capital city median prices – November 2009

Avg weekly earnings

Now it is important to note that this figure relates to earnings not ‘disposable income’ – so from this figure you must subtract income tax and add income from other sources such as investments (we aren’t going to do that for the purposes of this exercise).

Based on the annualised earnings figure and median house and unit prices across Australia’s capital cities as at November 2009 we have calculated how much greater the median house and unit price is compared to the income.

Ratio of average personal income to median house and unit prices by capital city – November 2009

Cost by city

In the most extreme example the median house price in Sydney is 8.2 times greater than the average annual income and in the least severe of examples median house prices are only 5.8 times greater in Hobart.  For units the results aren’t as dire, in the worst case Melbourne units are 6.3 times greater than the annual income and in the most affordable city, Hobart, median units cost 4.7 times more than average annual incomes.

Considering that many people live as couples, a dual household income makes it much more affordable to purchase a capital city property.  Doubling the average weekly earnings provides a much more palatable ratio.  Houses in Sydney are 4.1 times greater than the average annual ‘dual income household’ whilst in Hobart and Adelaide the difference is 3.1 times.  For units, median priced property is 3.1 times greater than the annualised ‘dual income’ in Sydney and Melbourne and 2.4 times greater in Hobart.

I think it is important to understand what is representative of the median priced property in each capital city (these medians have been detailed above).  The table below highlights a suburb in each capital city for units and houses which have a current median price close to the current capital city median.

Median prices representative of city wide medians – November 2009

Median prices

Really think about these suburbs, what type of amenity they have and where they are located.  The average house or unit in these suburbs essentially represent the average property across the city.  In many instances I’d suspect that these results are quite surprising (they were to me).  The unfortunate reality is that many of these suburbs aren’t particularly close to the city centre, don’t have great public transport amenity and probably aren’t high on the list of where most prospective buyers are aspiring to  live.

The results show that for a single person it is extremely difficult to own a property within a capital city in this day and age especially if the property you’re looking to buy is ‘average’.

With dual incomes it becomes significantly more affordable to get your foot into the home ownership door.

I guess the trick is realigning expectations of what you can afford and look at the first property purchase as a stepping stone.  The first purchase doesn’t have to be the property you plan to live in for the next 20 years, buy somewhere with growth potential where you can build equity and upgrade to the next property or look for a more affordable alternative such as a unit or townhouse.

Undoubtedly most people would aspire to live reasonably close to the city (especially whilst working) but you must be aware, there is a premium paid for the privilege.  Clearly housing in the most desirable parts of our capital cities is expensive and it is difficult to get into the market, but it’s hard to see that this will change.  With the largest employment opportunities focused within these capital cities and with almost 63% of the nation’s population living within the nations capitals, homes close to the city, close to public transport and amenity will likely continue to be the most highly sought after.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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3 Responses to If you want to own property, get a significant other first

  1. Karl February 27, 2010 at 5:01 pm #

    How is it that in two rpdata articles published on the same day they appear to contain contradictory data?

    This link: http://www.rpdata.com/press_releases/australias_residential_property_market_begins_2010_in_the_black.html

    States: Rismark’s affordability index shows that Australian house prices are around 4.1x disposable incomes, which is where they have been for the last six years

    Where as this article shows that income at 8.2 in Sydney (never mind disposable income).

    • RP Data Research February 27, 2010 at 8:45 pm #

      Thanks Karl, you have already provided an answer as part of your question. The Rismark affordability index is calculated at the national level and also uses a different methodology which is based on disposable incomes at the household level. In contrast, the figures we have posted here are at the capital city level and based on annualised weekly earnings data for individuals. I think most would agree that housing affordability is much more of an issue within the major metro areas than regional markets.

    • RP Data Research March 1, 2010 at 8:43 am #

      It’s probably also to point out that although Rismark use our data for their analysis, the Index is not an RP Data product rather a Rismark International product which uses RP Data’s data.

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