The Great Australian Affordability Myth

I bought my first home about 10 years ago. It was a 40sqm warehouse conversion in Collingwood and I paid $339,000. It was small, but had everything I needed and I loved it! Mind you I was just ecstatic to have bought my first home – anything! I remember my friends telling me I turned white when the hammer went down at auction and I was the highest bidder. (I had bid at countless auctions and lost before that day).

Much of my generation has a very different mentality when it comes to housing compared to generations past. They want to live in the most desirable suburbs, in the property type they think fits their lifestyle best and they want to do it now.

Before people jump down my throat and say the areas with affordable properties are too far from their work or family, let’s take a closer look.  In the table below are five of the most desirable lifestyle locations in Melbourne. All great areas within 10km from the CBD and with median prices which are affordable on most full time incomes. (Remembering that ‘median’ means half the properties are under that value)

Suburb Median Unit Price* Distance to the CBD*
Brunswick $451,000 5.9km
Northcote $460,000 7.7km
Windsor $462,000 7.0km
Footscray $412,000 6.6km

*Median Unit Price from APM and Distance to CBD from Google Maps

The median house price in Melbourne is $688,000. For units (town houses/apartments) it’s even less at $519,000. In my view, first home buyers should be buying under the median, in fact, well under the median. The same factors around capital growth that make it difficult for first home buyers to buy larger properties in expensive suburbs are the same factors that will help them do exactly that in the future. Compounding growth. Property investment is made up of stepping stones, getting into the market (the right property, in the right suburb) will help you on that journey.

Based on CBA’s borrowing calculator, a single person on the Melbourne median income of $67,700 (with a $5,000 credit card debt) can borrow $431,865. Based on the table above, this means they could buy at the median price in any one of those very desirable suburbs (maximum 90% lend).

For me, you buy what you can afford when you can afford it. Property ownership should be seen as a journey rather than a destination.

Bill Nikolouzakis – Nyko Property

Bill Nikolouzakis (250px)




P.S For some interesting reading on housing affordability – see the two articles linked below.

Housing Rhetoric Becomes Less Rational – Property Observer

Housing Unaffordability Myth – Business Spectator

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