The truth about buying a house in Australia as a financial decision from 2018 onwards is simple – it’s not a good decision for average wage earners. on the other hand for people who earn significantly higher average wage and dependent on your circumstance it may be a good decision.
Following on from my posts on the average wage in Australia I’ve been meaning to write about the housing situation in Australia for a little while but I originally figured it’s for another type of Blog not this one. However after reading the trends and reportable statistics, political news and opinions of so called industry experts I’ve decided that they are clouded by conflicting motives. Hence I wanted to have my own say on the housing situation.
1- Politicians need high prices to make them selves look and seeming inspire confidence in their management of the economy. Of course they will talk up the economy in the hope that people will believe them. Economists who are their advisors seem to believe that inflation or the rise in prices is a good thing, to the average person this is not a especially desirable if the average wage does not increase. As a result no one is actually better off, just the numbers seem bigger. In fact spending so much money on a house takes money out of the economy especially if it’s not a new house. Thus basing opinion and consequential decisions on economic theory is not the best idea when real life factors are taken into account.
2 – It’s a trap! Would be owners think that prices will go up over time hence a good investment however there is something call the interest rate on the loan that everyone forgets that reduce any price increase you will get. You not only pay back the principle of the loan but the interest from your borrowing. If you think buying an apartment is a good investing? The buzz word of negative gearing is just that! Thinking you be better off in the end is truly an example of hope. You pay tax on any ‘profit’ you get from selling the house and if it doesn’t cover the interest on the loan you are actually worse off.
3 – It’s a circle. There are a number of key factors that effect that prices. One of the key factors is the average weekly wage, and has the most impact on house affordability in Australia. The average home loan in Australia is $488,875.00 but it does vary. Follow the link to read more details.
5 – House prices do rise over the long term simply due to inflation, demographics namely population increase and the performance of the economy aka wages. However in 2018 and onwards things are no longer certain, not just the economy but a whole new internet generation and long term political infighting especially in relation of immigration.
4 – The impact of overseas buyers of Australian housing does have an impact on house prices but it is only for locations previously identified as ‘the best places to buy’. The housing industry want higher prices to get great selling commissions so inflate these prices to largely uninformed buyers like those from China who have censored internet data. Lots of overseas buyers purchase units in the city or central areas apartment. Unit prices do not increase like in land restricted countries eg. Hong Kong or Singapore. They may seem to have lots of money but it is probably borrowed due to a number of factors to be explained in another post. You won’t find foreign owners in your average suburb.
The Airbnb effect in Australian city apartments in particular Melbourne is obvious. Greedy property developers build tiny apartments that a normal person would not consider for a long term purchase so the owners are convinced to buy as an investment. As an example and based on pure empirical observation, a particular building in the city probably has over 50% Airbnb observed by the 40 or so people with suit cases waiting to get in to the building not just once a day but throughout the day. Unfortunately for investors it is unlikely that the apartments in the building will ever increase in price or desirability which is the key driver for the apartment and it’s purchase price in the first place.