The “Housing Affordability Crisis" is a load of rubbish!

It seems that almost weekly a media outlet runs a story about the ‘so-called’ housing affordability crisis in Australia. The most recent segment I watched on TV this week suggested that Sydney is the second most expensive city in the world behind Hong Kong… really? Have they been to New York and Paris?

Buying a first home has always been difficult (expensive). My parents purchased their first family home in 1969 for $12,500 and borrowed $9,750 which, at the time, was an extraordinary amount, according to my mother. Purchasing this home required my parents to save hard and make plenty of sacrifices.

The price of a first home is delayed gratification.

I think younger people today are finding it hard to buy their first home for two reasons:

  1. Their definition of a first home needs to change. They need to be prepared to make a start in the property market with a second or third grade property first. Maybe something they can renovate or add value to. You cannot expect to be able to buy a first home in a blue-chip suburb. You may have to buy something further out from the CBD and use it as a stepping stone. This is exactly what I did.
  2. Achieving most meaningful life goals requires a healthy combination of hard work and sacrifice. You cannot go out for dinners regularly, have an extensive wardrobe, enjoy amazing holidays AND at the same time, save for a deposit. There is a price for everything in life and the price for getting into the property market is making short term lifestyle sacrifices. It has always been this way – and always will.

I’ll prove it to you

You can buy a decent entry-grade apartment in Melbourne for approximately $450,000. This might not necessarily be a perfect property from an investment-grade perspective – but it should have more right with it than it does wrong. It’s a start and it’s better than nothing.

After a quick 5 minute search on the internet I have found this property to use as an example. It has appreciated in value by an average rate of 7% p.a. over the past 15 years so it has a proven capacity to generate capital growth.

To purchase this property (it sold for $420k in Feb 2016), you need a deposit of $52,000. To achieve this, assuming you start with savings balance of $25,000, it will take less than 3 years saving at a rate of $500 per month if you invest your savings in this Exchange Traded Fund ( for example) which will help you earn some dividend income to help you accumulate a deposit.

Of course, this property will cost more in 3 years’ time. Perhaps it will cost $515k. Therefore, you will need to save $700 per month to accumulate the required deposit of $65,000. It may not be “easy” but it’s doable for many (assuming your family’s gross annual income is around the $75,000 mark or more).

A lesson for making a start

I met with a client last week who is contemplating a career change which will result in a sizeable reduction in income. In November 2013, we helped her purchase an investment property (1 bed art-deco apartment) in Hawthorn East for $440k. Last year two comparable apartments sold in the same block for $580k each. In a relatively short space of time, this client has accumulated $140k of equity which is a great story.

In hindsight, thankfully this client purchased back in 2013 because given her planned income reduction in the near future, if she hadn’t purchased back in 2013, I wouldn’t be recommending she do it now[1].

The lesson we can all learn from this example is take your opportunities. If you are in a position to invest now (i.e. it’s safe to do so), then do it. Don’t overthink it. Make a start because if you don’t, you might regret it in years to come.

Educate young people

Be careful with the media you consume. Often, what you think is what you will see. If you think it’s impossible to buy a home then all you will see is evidence that confirms this belief. Whereas, if you believe you can buy a home, you will find a way.

My advice is to do your best to educate the young people around you and help them understand that they don’t need to believe the media and politicians. If it’s important to them, they will find a way – just like I did, my parents and my grandparents did. Property has always seemed expensive. The most important thing is to make a start. Start small and work your way up. If nothing else, owning property becomes a great savings plan.

[1] The reason the client came to see me was to work out if the planned career change (income reduction) was affordable i.e. could she do it, afford to live, meet her commitments and still fund retirement.