Straight Facts: Comparing Modern Home Ownership Struggles with the 1980s and 1990s
House Price-to-Income Ratio:
1980s/1990s: The median house price in Australia was around 2-3 times the median annual household income in the 1980s.
Source: https://www.rba.gov.au/publications/bulletin/2012/dec/pdf/bu-1212-2.pdf
Today: As of recent data, the median house price is now over 7-8 times the median household income, significantly increasing the affordability challenge.
The Straight Fact: Quite simply, house prices have increased significantly more than incomes, making affordability more difficult. Don’t even start with “but interest rates were 18%”, we address that here.
House Prices:
1980: In 1980, the median house* price in Australia ranged from $36,000 in Adelaide to $69,850 in Sydney
Today: In 2022, the median house* price in Australia ranged from $563,750 in Perth to $1,291,150 in Sydney
Source: https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2023-09/complete_wp_abelson_joyeux_sep_2023.pdf - Pages 4-5
The Straight Fact: House prices have grown exponentially and as shown above, incomes aren’t keeping up. Data is from 2022 and has further increased at higher than average rates since.
* House prices used. Unit prices shown in source.
Home Ownership Rates:
1980s: In the 1980s, the home ownership rate for 25-34 year olds was 60%+.
Today: By 2021, this had dropped for 50% for 30-34 year olds and 36% for 25-29 year olds.
Source: https://www.aihw.gov.au/reports/australias-welfare/home-ownership-and-housing-tenure
The Straight Fact: It’s getting harder to buy a home which is why ownership rates are dropping.
Wage Growth vs. Housing Costs:
1990s: Annual wage growth hovered around 3-4% throughout the late 1990s up until the GFC in 2009.
Today: Annual wage growth fell to less than 1.5% by 2020. While wage growth has since increased to 4.2% in 2024, it has not yet made up the ground lost with over a decade of stagnant wage growth.
Source: https://www.abs.gov.au/media-centre/media-releases/annual-wages-growth-41-march-quarter-2024
The Straight Fact: While Wage Growth has increased in recent times, it has still not kept up with the growth rate of house prices. We will need to see the levelling out of house prices with continued growth in wages to make housing more affordable.
Saving for a Deposit:
1980s/1990s: In the 1980s and 1990s, it took between 4 and 6 years to save for a 20% deposit.
Today: In the 2020s this has since increased to over 10 years.
The Straight Fact: With stagnant wage growth resulting in lower disposable incomes and increasing house prices, it’s now taking households more than twice as long to save for a deposit versus the 1980s.
Housing Supply
Past vs Present: Population growth and the construction of new homes has been relatively consistent and complimentary for the past 100 years. This has changed since 2020 and population growth is far outpacing new builds.
Source: https://www.macrobusiness.com.au/2024/05/why-australian-rental-costs-will-continue-to-rise/
Source: https://www.housingaustralia.gov.au/research-data-analytics/state-nations-housing-report-2022-23
The Straight Fact: A combination of supply shortages during COVID, which led to fewer builds, and significantly higher-than-normal immigration has created a disparity, further increasing the demand for housing. This has resulted in higher dwelling prices and rent.
The Straight Summary
Buying a home today is much harder than it was decades ago due to several interrelated factors. The house price-to-income ratio has significantly increased from around 2-3 times the median annual income in the 1980s to over 7-8 times today. House prices have surged dramatically, far outpacing income growth, which has been relatively stagnant for the past decade.
In the 1980s, it took around 4-6 years to save for a 20% deposit, but today it takes more than 10 years due to higher housing costs and lower disposable incomes. The decline in homeownership rates among younger adults reflects this trend, with rates dropping from over 60% in the 1980s to below 50% for those in their early 30s today. Additionally, a shortage of new housing construction, exacerbated by supply chain issues during COVID-19 and increased immigration, has driven up demand, leading to higher prices and rents.
Overall, the combination of higher house prices, stagnant wage growth, longer times needed to save for a deposit, and supply shortages has made homeownership much less attainable for younger generations compared to previous decades.