In light of Bernard Salt’s less than favourable article on Gen Y and their love for an avocado smash, it feels fitting that I weigh in on the debate, in the defence of Generation Y. As house prices soar, housing affordability is becoming a hot topic and it’s inspired my investigation into how affordability has changed and how it differs between our capital cities.
The rapid growth of Sydney property has seen the median house price approach the million-dollar mark. The question being asked is, ‘will it ever stop?’ In the background the impending property market crash fears have grown, assisted by media exaggeration. As an aside, there hasn’t been a property crash in 130 years. Guided by research rather than fear and the media I thought it appropriate to investigate how affordability has changed over the last 30 years. Property markets are cyclical and historically peaks occur every 10 – 15 years. These distinct trends allow us to look at the current market relative to previous cycles and provide a sense of perspective.
It doesn’t take a degree in property economics to know that strained affordability limits the potential for property growth. Alternatively, affordability in conjunction with the relevant growth fundamentals will drive demand and price growth. Two markets which we believe present this combination are Melbourne and Brisbane.
The graph below shows average household income as a multiple of Sydney, Brisbane and Melbourne’s median house price.
What you can see is a growing disparity between incomes and house prices. Sydney has now reached its highest point, where the median house price is over 8 times the annual household income. The figures for Melbourne and Brisbane are 6 and 4.5 respectively, highlighting the value proposition of these cities Brisbane and Melbourne.
The good news; your dream Sydney home is only 57,677 avocado smashes away (assuming you’re only paying $15 per smash).