Impact of Global Crisis now being felt in Australian Property

Impact of Global Crisis now being felt in Australian Property

Australia has weathered the recent global financial crisis better than most countries. Thanks to a more stringent set of banking laws, it did not experience the same sub-prime issues that other nations did. As a result it had one of the strongest economies in the world after the crisis began. However, the average Australian has seen relatively little benefit from this, due to a quickly rising cost of living. In a relatively short period of time, Australia has become more expensive to live in than almost any other country. Living in Australian cities is now less affordable than even New York, London, or Singapore are. This is having a significant negative impact on many first time home buyers.

The Rising Cost of Living in Australia

Sydney is now the sixth most expensive city to live in out of all the countries in the world. Even though the Australian dollar has nearly doubled in value relative to the US dollar between 2002 and 2011, the purchasing power of the average Australian has not increased at all. The price of imported goods has not been significantly reduced as a result. Over this same period, the Consumer Price Index rose by a whopping 28 percent. The average Australian home owner spends 45 percent of his or her income after taxes just in paying off debts. One in five first time Australian home owners spends more than half of his or her income paying off debt. This is a significantly higher level of debt than that carried by citizens of most other developed countries. The citizens of the United States, the United Kingdom, Canada, Ireland, India, and Mexico had an average of 38 percent of their income spent on debt.

 

The Rising Cost of Housing in Australia

In the 1980, an average house cost three times the median family income, which is considered to be an affordable level. Today, the average house costs nine times the median family income, which is not very affordable. Interest rates have been rising as well, making mortgage payments higher and more difficult to meet. Mortgage payments now account for over 27 percent of the total household income. As of 2010, more than 40 percent of all first time home buyers were having some degree of difficulty paying their mortgages. In other words, housing costs are skyrocketing at the same time that it is becoming more difficult for Australians to purchase food, fuel, and all of the other necessities of living. This is counterintuitive, as Australia's abundance of land should mean that housing prices are amongst the lowest in the world. Nor is the government able to do much to ameliorate this situation. There is very little public housing available, the government only provides 1.4 percent of Australia's total housing property, and is loath to build large amounts of additional housing for fear of negatively impacting existing house prices and causing economic instability.

 

The Effect on First Time Home Buyers

This has radically changed the home buying landscape in Australia. In the 1970s, the average age of a first time home buyer was 25. Today, it is 31. Many young people are now finding home ownership to be entirely out of reach, and are having to settle for either renting, or continuing to live with their parents. In a recent survey of members of the youngest generation, Generation Y, one out of three respondents replied that they did not believe that they would ever be able to afford a home of their own when asked. Generation Y may be shaping up to become the first "homeless generation." This kind of radical change in living patterns would have repercussions across almost every facet of Australian life.

 

Home Ownership and Dynastic Wealth

This pessimistic housing outlook may spur some "Mum and Dad investors" into thinking that they should play it safe, and wait to see how the global financial crisis plays out before making a move. This kind of fear can be the wrong reaction, though. Many of the biggest fortunes were made during recessions and even during depressions, and the perennial wisdom that "there is security in land" is as true as ever. Now is the time for Mum and Dad investors to buy a home because no matter what happens with the economy, that home offers significant long term profit of one kind or another. With prices and interest rates going up, it is better to buy a home sooner rather than later. If the economy rebounds after the recession in the same way that it has tended to historically, then this home will have been a good investment financially. Even if the economy does not rebound, then parental investors will still have gained in another important way. They'll have created dynastic wealth, something that will be passed on to their children and their childrens children

 Mum and Dad investors putting their money into buying a home are helping subsequent generations to have a better standard of living, a substantial investment in the family's future. As with many economic downturns in the past, the present situation presents an opportunity for those who look toward the long term when assessing their investment opportunities.

From The Author

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