How well has your salary kept up with house prices?
by The Advantage
2 December 2021
You’ve probably noticed that house prices in Australia consistently outstrip growth in wages. But by how much? And what can you do to make sure you’re not forever chasing the great Australian dream?
Each generation faces its own unique set of challenges (and opportunities!).
And for the current crop, one big challenge can be breaking into the property market. Especially when you’re competing against older generations that have had at least a decade (or two, or three) headstart on the property ladder.
That’s not to say it can’t be done. Far from it. But it does require good planning, discipline, and motivation to stick to a plan.
Because historically speaking, and as you’ll see below, the longer you leave it, the harder it is to keep up.
How much have house prices grown compared to wages?
Over the past year there was a 2.2% annual increase in the Australian wage price index (WPI) – just short of the decade average growth of 2.4% – according to the Australian Bureau of Statistics.
Meanwhile, Australian housing values have jumped by more than 20% over the past year.
But hey, that’s just one year – and an absolutely bonkers year at that.
Let’s look at the trend over the past two decades to give us a clearer picture.
Over the past 20 years, wages have increased 81.7%, while Australian home values have grown 193.1%, according to this CoreLogic cumulative growth graph.
And here’s a state-by-state breakdown. As you can see, Tasmania has the biggest disparity between wages growth (79.6%) and house price growth (294%), followed by ACT, Victoria, NSW and then Queensland.
What does this mean for your next property purchase?
In short? It’s becoming tougher to save for a house deposit.
In the year to October, a 20% deposit on the median Australian dwelling value has increased by $25,417 to a total of $137,268, according to CoreLogic.
“With wages increasing just 2.2% in the year to September, it is difficult for household savings to keep up with this kind of increase,” explains CoreLogic’s Head of Research Eliza Owen.
“This tends to lead to less demand from first home buyers through periods of rapid property price increase.
“Another important implication of high house prices relative to subdued wages growth is lower purchasing power when it comes to mortgage serviceability over time.”
So what can you do about it?
Well, besides demanding a big pay rise from your boss, rest assured there are a number of options at your disposal.
For first home buyers, most states offer grants and stamp duty concessions/exemptions to help give you a leg up.
There’s also a number of federal government options, including the popular First Home Loan Deposit Scheme and New Home Guarantee initiatives, which on average enable first home buyers to make their home purchase 4 to 4.5 years sooner.
That’s right – 4 years sooner!
Then there’s the First Home Super Saver scheme, which allows you to save money for a first home inside your superannuation fund, which helps you to save faster due to the concessional tax treatment that super offers.
And for those of you looking to purchase an investment property, rest assured that there are ways to leverage the equity in your existing property to help you grow your portfolio.
So if you want to become less dependent on your annual wage for your wealth and retirement, and more invested in property, get in touch today.
We’d love to sit down with you and help make a plan to suit your current situation.
Disclaimer: This is general advice and has been prepared without taking into account your particular situation or needs. You should consider whether it is appropriate for you before acting on it.