Housing Affordability – Who Wins

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Housing Affordability – were Baby Boomers really better off?

You be the judge

By Adrian Stagg

Not since Clem Jones, Brisbane’s Lord Mayor at the time, allowed Sunday trading for cinemas and Joh Bjelke Petersen was elected Queensland’s Premier have interest rates been so low. That time was July 1968 – a full year before man first walked on the moon – 2 generations ago!

Housing prices have risen dramatically all around the country since but so have incomes. Average figures and statistics are often quoted for these and frequently confused to the point that they are of little value. The facts are that average prices are different for different cities and states as they are within each city.

Housing cost is a hot topic

So, the big question, – are homes less affordable today than they were back in 1968 when many ‘Baby Boomers’ were just starting out? Some feel that Baby Boomers got an easy run, so let’s investigate, but before we do some baby boomers were born as late as 1964 so they had different experiences to those born 15 years or more earlier.

Average annual incomes in 1968 have been reported by some as being $3,525 pa and by others as being about $19,000. They can’t both be correct; however my recollection of these times is that it is the former – $3,525 p.a. that’s right. Two years later I was on $39 pw as a trainee out of university working for BHP – that’s not much over $2,000 p.a.

I bought my first home in May 1972 for $18,000 in Wollongong NSW and my income by then had grown to approx $120 pw, so the home cost was around 3 times my income. In those days house price inflation hadn’t really started so the price of the home that I bought is unlikely to be much if any different to 1968. That home was a modest 2 bedroom older style brick cottage on about 600m2 of land in a fairly ordinary position but close to town. It was a deceased estate – a good buy supposedly. Had I bought in Brisbane at that time in say Paddington, I could have bought for around $10,000 without difficulty – it was a poorly regarded suburb back then. I was even able to buy homes there in the early 80’s for around that sum.

Interest rates, that is, bank home loan rates, were around the 7.5% mark then, although within 10 years they jumped substantially, pretty much doubling to 13.5% where they were regulated to stay for some years – if you were lucky enough to have a regulated loan that is. By the early 90’s they had gone as high as 17%. Since then they have generally been in a falling trajectory punctuated occasionally by well publicised increases.

Modern Townhouses offer much more than Boomers ever got

Back in 1968 interest rates were not the big news item that they are today. Nor was economic news generally. Television was still black and white and “A Current Affair” with Mike Willesee was still more than 3 years away and Today Tonight did not come along until 1994. The only current affairs show existing at that time was This Day Tonight on ABC which commenced in 1967 and was considered “ground breaking”.  To get financial news you had to buy the Financial Review newspaper.

Today average weekly earnings in Australia are $1129 ie. $58,700. Whilst this figure includes overtime and superannuation it is compromised somewhat because it also includes part time workers and they make up a much higher proportion of the workforce than in 1968. As we’re using the full time average earnings for 1968 we’ll also use the full time adult average weekly total earnings as at November 2014 which were $1,539.40 / wk. Viz: $80,050 p.a.

So using 3 times that figure would translate to a home price of $240,000 and yes it’s still possible to buy a home for that but not close to town in any capital city unless maybe a small studio or 1 bedroom unit in ordinary condition.

That’s not the whole story however – to get that you also need to consider loan availability and interest rates. In 1968 loans were hard to qualify for and interest rates were higher than today by approximately 40%.

Cleverly designed small lot homes are a popular choice
Cleverly designed small lot homes are a popular choice

So yes, maybe those boomers born early in the cycle did get it better but what about those born later who were faced with interest rates around 15.5% in their early 20’s. At that time average weekly wages ranged between $340pw ($17,500 pa) and $390 pw. ($20,000 pa). Inflation had really started then. In the mid 80’s house prices were still around 3 times earnings in parts of Australia to more than 4 times in Sydney, ranging Just under $60,000 in Brisbane to a little over $88,000 in Sydney.

Couple those numbers with interest rates at the time and you will begin to see that those ‘Baby Boomers’ had a somewhat harder task than their older siblings when it came to owning their own home, possibly even harder than today’s Gen Y.

We’re involved quite regularly these days when considering development possibilites to look at Dual Occupancy and Granny Flat options with a view to harness the power of two (or more) to achieve home ownership. These sorts of options were not readily available back in 1968.

We’d love to hear your thoughts and comments on this…..

Comfortsble solutions lead to happy couples
Comfortable solutions lead to happy couples