2022-23 Work From Home Deductions - What You Need to Know

In 1970, you could buy a house in Sydney for $18,700, and in 1980, the average house price was around $76,500. By 1990, the average had more than doubled to $184,600. And in 2000, you needed about $312,000 to purchase a dwelling in Sydney, with the number rising to $575,900 in 2010. 

Today, the median home price in Sydney is $1.4 million, but that doesn’t mean you should throw up your hands and relinquish all hopes of buying a house. In fact, when you understand the different conditions in play over the last several decades, you’ll see that it’s still possible to buy a property.

Between 1980 and 2015, the OECD’s price-to-income ratio index showed a 78 per cent increase. Of course, conditions like these have a significant impact on lifestyle and personal wealth. But there are things you can do to alleviate the effects of market conditions on your financial situation.

In this article, we’ll first look at the affordability of Australian property in recent decades, and then we’ll offer suggestions on how to manage current market conditions.

Affordability of Australian Property in Recent Decades

Massive changes have taken place in Australia in recent years. Let’s go back to the 1980s for a broader perspective. Much of the information below is derived from a government-published paper by Ryan Fox and Richard Finlay, ‘Dwelling Prices and Household Income’.

Australian Property in the 1980s

Housing prices remained relatively flat during the 1970s and early 1980s. But several factors lead to a rise in prices, especially toward the end of the 1980s.

Financial market deregulation meant less credit rationing, and more households had the opportunity to borrow money. The increased credit supply was amplified by falling inflation, which decreased from an average of 10 per cent during the 1970s to 2.5 per cent by the 1990s. 

The fall in inflation led to lower nominal interest rates, particularly in the late 1980s, and the fall was dramatic, from about 17 per cent at the beginning of the decade to 6 per cent by the end. These lower rates meant that mortgage payments didn’t rise as much as dwelling prices. 

Another effect of lower interest rates was a reduction in the need for ‘front-end loading’. Previously, with interest rates in the teens, the servicing and repayment burden was disproportionately large in the early years of the mortgage. The result? People could afford more expensive homes than previously, and expectations for nicer homes became the norm.

Australian Property in the 1990s

During the 1990s, a fundamental shift took place in the way Australians viewed real estate. One writer for The Guardian stated, ‘property went from being housing – a utilitarian concept – to a financial asset’. 

The increase in housing prices accelerated, often reaching 20 per cent increases year over year, and many new potential home buyers found themselves priced out of the market.

Australian Property in the 2000s

Changes in capital gains tax during the late 1990s may have made property more attractive to investors. At the same time, subsidies for first home buyers brought more people into the housing market.

Also, disposable income was on the rise. Between 1980 and 2010, it grew by almost 50 per cent after accounting for inflation. This increase in disposable income allowed households to devote more of their money to housing while still improving their standard of living.

The trends of the 1980s and 1990s led Australians to adopt the concept that they should increase the size and quality of their homes over time. The idea led to an increase in both the volume and price of homes on the market. At the same time, Australians bid up the cost of land, which is ‘fixed’ in supply. 

During this decade, the prices of coveted property shot up. As a result, dwellings in the inner city and along the waterfront rose faster than other dwellings, as might be expected for their proximity to work and amenities. 

Australian Property in the 2010s

Housing prices continued to rise due to several factors: foreign and domestic investors purchasing property in desirable areas, low interest rates and the use of superannuation savings to buy housing. But incomes continued to rise as well, and interest rates remained historically low.

Australian Property in the 2020s

In the early 2020s, affordability continues to be a stressor for many Australians, but wages are also high even though prices are high. According to NAB Group Economics, ‘Australian housing values rose 17.6% higher over the first nine months of the year and 20.3% higher over the past 12 months. As a result, the annual growth rate is now tracking at the fastest pace since the year ending June 1989.’

How to Manage Current Housing Market Conditions

If you purchased a home in the early to mid-1980s, you’ve enjoyed an incredible increase in the value of your property. But if you’re trying to buy your first home, you might wonder where to begin.

 First of all, don’t get overwhelmed. While a first home purchase might feel emotional, the process is straightforward. And when you approach it with a cool head and an eye on the data, you can significantly reduce the risk of making a poor decision.

 Start by putting your finances in order. We’ve developed a handy checklist for home buyers that you can use to prepare for your purchase. It’s also wise to talk with your financial adviser about how this acquisition will affect your retirement planning, taxes, cash flow and overall economic well-being.

Yes, home prices are high in 2021, but you have other factors in your favour. Unlike your parents or grandparents, you’re not dealing with interest rates of 17 per cent. And you have real estate information at your fingertips that previous generations could only dream of.

So reach out to us at Altus. We’ll sit down with you and go over the numbers. You can get all of your questions answered, and together, we can make a plan to help you become a homeowner. Let’s talk!