Every time there is a property boom or strong price rise, the next topic is home affordability. I have seen this cycle so many times it is predictable. Some would think that working in the real estate industry, as well as being a baby boomer, I would take the side of the status quo. But my sympathies lie with the Gen X, Gen Y, renters and first homebuyers. I think they are getting a bad deal and here is why…
Housing affordability is measured using the ‘median multiple’, which is a measure employed by the World Bank. It is found by dividing median dwelling prices by gross annual median household income. An indicator of 5.1 (i.e. house price is $500K and household income is $100K) or more is considered to be highly unaffordable. Even with this multiple being measured with 2012 figures, before the most recent boom, Sydney’s multiple was 13 to 1. Highest in the world after Hong Kong.
Since Byron Bay’s median price tracks similar to Sydney we can use the same figures – or a lot worse since not many people here in Byron are earning Sydney wages. A normal young couple buying a home here would face serious problems. Renting is even worse when you combine the complete lack of supply, loss of stock to holiday letting, large numbers of workers on the highway upgrade – forget about finding a rental in or around Byron Bay. Most of my friend’s kids have gone off to Melbourne to get a job and find a place to live.
The rough rule of thumb is to take three zeros off the purchase price and that is the rental. I just inspected a 3 bed 1 bathroom house in Sunrise Beach for sale for $625,000 and the agent said it would rent for $640 per week. That will rent to at least three 20-somethings working in hospitality on a basic wage and paying more than half their income on rent. They are expected to save up for a home deposit at the same time. I once saw two adjoining units in Sunrise and the garage doors were open and each had two double decker beds in them. Four kids in the garage! Imagine the bedrooms.
Anglicare Australia just released a Rental Affordability Snapshot for the Far North Coast. It looks for rental properties that tick a checklist of 14 “needs based” categories. This means they would suit low-income families, single mothers, youth, etc. Byron Bay did not have one property that ticked one box in any of the categories. Ballina had 5 options from 55 rentals, Tweed Heads scored 9 out of 55 for affordability but none of the other 13 Categories. Lismore and Casino were the only places with a few options. We probably have the worst rental situation in the state ouside of Sydney.
Commentators are right to see it as a generational war. My generation went through the culture wars when hair length, drugs and music were the battlegrounds. These days, I am surprised that younger generations are not taking it to the streets more stridently. They are being mistreated with too many policy settings to benefit wealthy older investors over the young and not so well off. Let’s hope that the current Negative Gearing debate is fully fleshed out and our new nimble PM gets to explain and promote it fully instead of hiding behind yet another scare campaign.
Many of the rental-afflicted could do more than just lobby the powers that be. I am sometimes bemused that young people anxious for housing are also vehemently opposed to any development at all. There are lots of ‘orrible development options that need to be stopped if possible, but this can be counter productive. It is an easy line to draw between lack of supply and high prices – you do not need to have an economics PhD to work that out.
Changing government policy is only one way to bring about better outcomes. Look at joining forces and pool deposits, co-housing, exploit existing structures like Multiple Occupancy, Community Title, extended dwelling to get a roof over your head cheaper. They are doing great things with empty shipping containers. Good to hear that Mullum has started its own Community Land Trust. This has been successful in the USA and UK but only fledgling here. This is non-profit that holds land in trust and leases to members avoiding crippling rents as well as capital gains going back into the system. Google CLT for more info.
When I was a young anarchist in inner city Sydney I often found myself and other miscreants living in squats. Vacant public and private buildings were thought to be an affront to the homeless and the “artistically” unemployed. While living in overcrowded shared terraces I had a lot of fun and also thought I would never be able to afford my own home. One day, as if on a whim, I purchased an ocean view unit in the then untrendy Bondi Beach for $130,000. I was fortunate to discover the joys of passive income through property. Maybe the alphabet generations just don’t know how to go out and get what they want!