The Cost of New Houses

[Hagar]

We are currently hearing a lot about the cost of buying a new house in the Albury area. Our daughter and her husband are trying to save the deposit for a house but maintain it is out of reach.

I looked into the whole thing and after a discussion with a real estate office in Albury it appears it is not the cost of housing that poses the greatest wall to a young couple making the big purchase but more the size and extras they feel they have to have.

When I purchased my first house it was a small 12 squares 3 bedroom house with one toilet and shower. It seems today the average house built in this area is about 21 squares and comes complete with Home theatre room, 2 or more toilets, family room, children's retreat, living room and formal dining room. Some have rooms I have never heard of. They also have to come with outdoor living areas, double garages, landscaping and paving. When I looked at the price they weren't that expensive compared to what we started with.

How can a young couple with a couple of kids expect to purchase such a mansion with only one person working. When we bought our first house we effectively paid more for less but we did it on one salary (usually)but had no furniture and a garden of just grass for a few years.

Our first house cost $40K in Craigieburn )Melbourne) My salary was about $80 a week take home. In those days I was a tradesman going to uni part time and still managed all my bills and expenses.
The houses we looked at in Albury were around the $330k with a tradesman on around $800 a week at a minimum.
Seems to be just a scaling factor until you add in all the new furniture. home theatre suite's and pools they must also have.

Your thoughts.

[multiweb]

I heard on the news this morning that the housing bubble is about to burst both in Melbourne area and Perth. Prices are artificially inflated by limiting supply apparently. I'd wait a little more before buying. Not a good time to buy right now.

Having said that you're not wrong about the expectations of young couples entering a minimum of $550k loans without batting an eyelid. It must be clever marketing from builders. The "mansion" is a given and expected.

I bought a 3 bedroom house and land package in 95. First thing I bought was a fridge, a washing machine and a mattress. Then we took it from here.

Although it is a lot harder to get in the housing market now I think a lot of couples need to bring their expectations a little lower. I hear some people crying poor because they can't afford to buy a house. Well... there are a lot of people O/S renting. A house is a luxury. You are to consider yourself very lucky if you are in a position to finance and get in the game to buy one. It's far from a "normal" thing to do IMHO. "the block" on Channel 9 and the reno shows are probably to blame. Good snow job. :)

But then again, I've eaten enough sh|t in my days to appreciate what I've got. Some of the younger generation don't know the taste of it and I wish for them they never do. :lol:

PS: I recently went to visit some exhibition homes in Warwick Farm at the Mastertons display. The basics haven't changed much. The high ceilings and designer crap seem to be the hype these days. It's all about looks, not really functionality. Walking in the bedrooms you can't help thinking how do you fit a bed in there. lol. Maybe they justify the prices. The "Alfresco" outdoor style is a big thing too. Chuck a BBQ and few tiles with plantation shutters in the backyard and add another $100k to the base price. As I say, clever marketing.

[Wavytone]

I agree - in Sydney the expectations of the current breed of 20-something's are totally unrealistic - they think its normal to be launching into a new house of 200 square metres with three bedroom, two bathrooms and a double garage.

My first property was a "renovators delight" -a wreck of a cafe with just two rooms (one up, one down) and an outside bathroom where in winter the wind whistled round you while trying to have a shower standing in the bath. After renovating 5 more I was able to buy my first reasonable apartment, and only after I married and over 40 were we able to buy a family home.

IMHO the endless property shows on TV have a lot to do with both pumping up the prices and raising people's expectations way beyond what is appropriate for their financial means

[Terry B]

The prices are over the top though even for "renovators delights".
My son is renting in Hornsby which is a long way from his work place. To buy a 2 bed unit of dubious quality would cost over $600K and most are over $700K. This is not even remotely affordable for him. The equivalent rent he pays would service a ~$300K loan maybe. There is absolutely nothing to buy in that price range within 40km of his work.
For that price in rural NSW you could buy a mansion but the job is the problem.

[rustigsmed]

High demand for housing and low interest rates = high property prices.

Australian cities are changing, very quickly. Plenty of challenges ahead. I don't think we'll see Australian cities near the rated top 10 'liveable' in a decade.

Australia's population at 30 June 2012 of 22.7 million is projected to increase to between 36.8 million and 48.3 million in 2061, and reach between 42.4 million and 70.1 million in 2101. http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%2 0to%202101

[traveller]

"We are buying stuff we don't need using money we don't have impressing people we don't like" :)

[Dealy]

My brother in-law when he first married wanted straight away what his parents had worked 30 years to get.

He went out and bought a brand new house, furnished it with brand new furniture, bought a brand new car, was not kept on at the end of his apprenticeship, and lost everything.

That was 20 years ago, he's only recently bought his second house with a bit more wisdom and common sense.

[multiweb]

I had a discussion with a 30 year old bloke couple of weeks ago who bought a house in Prestons, western Sydney. So a nice $500k loan. He probably paid $100k so far off the principal which is not bad. Then he went to buy an investment property in Oran park for $870k. Went half way with a "mate". Now that's a $935k loan at 4% which is rock bottom rate. He doesn't seem overly worried. He thinks he owns a lot of asset. People don't realise they live in the bank's house until they can't afford to pay. Little does he know (or realise) that if the interest rates rise or his properties valuations drop, which both may very likely happen, he'll be left in the street with nothing still owing a pretty hefty amount of cash. When I pointed it out he said: "yeah, but how do you get ahead in this game then?". Well... not like this. :question: I borrowed $100k initially, had $40k variable at 7% and $60k fixed at 9.3%. Back then, the bank also capped maximum yearly repayment to $5k. I didn't have much room to move outside of bills and food.

[Paul Haese]

It does seem there is a high expectation for all the bells and whistles or living close to the city. Even here in Adelaide new estates have huge houses on less than quarter acre blocks. The problem will be compounded once interest rates start to rise.

I firmly believe that many younger people see this as a right and not a privilege. Its part of the instant gratification expectation that people aspire to now. Don't forget that part of new house prices are the land on which the house sits. And; the ads we see here are houses which states prices start from "120K" but the house shown on the screen is not 120K, it is more like 340K. I suspect people get talked into buying expensive new houses.

[andyc]

House prices are becoming unaffordable in Australia, and it's not to do with 'expectations' it's there in the figures.

1: House prices have doubled relative to income (http://www.abc.net.au/news/2015-06-02/janda-why-housing-affordability-isnt-being-fixed/6514766) in most parts of Australia in the last 25 years (from 5x to 10x in Sydney, 3x to 6x elsewhere). So for equivalent people/families on equivalent jobs, houses are much less affordable.
2: Saving for a deposit is much harder. Deposits, driven by house price are eye-wateringly large relative to disposable income (after all the rents aren't cheap), so it takes relatively longer to save for your deposit, meanwhile you just get to keep paying off someone else's mortgage.
3: Investors are now responsible for over 50% of housing finance (http://www.theguardian.com/business/grogonomics/2015/jun/12/people-are-buying-ferraris-joe-hockey-that-doesnt-make-them-affordable), up from around 20% in the early 1990s. So in buying property, you're not only up against other people wanting to buy houses, as was typical 20 years ago, but many investors who inevitably push the price higher.
4: Cheaper places are so far away from workplaces that you spend the difference or you remaining disposable income in transport costs.

So it's a cop-out to say that people's expectations are too high. If you're a potential first-time buyer in Australia, you're stuffed six ways to Sunday, whether your ambitions are high or low...

[5: It's not in the interests of the wealthy with multiple investment properties negatively geared, profiting off the high prices of housing bubble, to change the system or let the bubble deflate. Apparently we all just need to get 'better jobs' :lol:]

[Allan_L]

I agree with you Doug, 100%.
When we bought our first house, we did not go out for dinners, we brown bagged lunches every day, we did not have expensive trips, and we bought a small 2 bedroom fibro house in the Western suburbs (although I worked in the CBD).

My daughter, who cries about how it is impossible for youngsters to buy a house has been around the world twice and spent 12 months in England and Japan respectively and does not think twice about jumping on a plane to visit friends interstate. Additionally, she has all the best furniture and clothes.

As well as housing expectations, they also want everything else right from the start.

(My wife and I have never been out of Australia - see your own backyard first we said.)

[AstralTraveller]

Sure the 'have it all now' crowd is out there but I know plenty of younger people who are doing it tough and who have bought modest places and furnished them with relos hand-me-downs and St Vinnies finest. One issue they face is that the cheaper places are out in the boondocks and they spend too much on fuel, money they'd sooner put on the mortgage. Obviously Wollongong's boondocks aren't as remote as Sydney's but some are still traveling 40km to work.

I'm not up on this but what is the choice before new home buyers. From what I can see of display villages you have a choice between over-the-top and too-far-over-the-top. Can you even buy a 10-12 square 3-bedroom place like many of us grew up in?

Sydney, of course, is a basket case. How anyone survives up there is beyond me. Interesting commentary on Sydney housing here
http://www.abc.net.au/news/2015-06-11/knight-why-my-kids-will-never-play-backyard-cricket/6538204 I'm very sad for young kids in inner cities. I never quite made a hundred in the backyard at mum's but I had a lot of fun trying.

[FlashDrive]

How times have changed... a lot that has been said here I totally agree with.

I bought my first house when I was 23 years old....it cost me $20k.
Yes... it was an old high set house with gable roof / 2 bedrooms and a sleep out.

It was on those big ' wooden ' stumps and ' bare ' dirt ( no concrete ) underneath the house.... also came with those ' old ' casement windows.

I was a single man then...working for an Aircraft Maintenance Facility...on $4.00 an hour wages.

I had $2k in my Bank Account which I used as a deposit to buy the house.
Borrowed $18k which resulted in a monthly house payment of $196.00 or roughly $47.00 a week.

Nothing ' fancy ' about the house .... ' tongue and groove ' wooden walls / lino in the sleep out / very ordinary carpet in the main bedroom. ( BTW the Bedrooms were huge and the house had ' high ' ceilings.

The guttering was a bit ' rusted ' here and there ....but who cares .

I could afford to buy this house on my ' single ' wage, and was ' chuffed ' to own my very own place.

The yard was ' riddled ' with dry cracks ( clay area ) , but a few weeks of good watering closed the ground up and the grass went green and the whole place looked a lot better.

I moved 2 years later and sold the house for $38k , paid out what I owed on the Mortgage and walked away with $18k in my back pocket.
The very next day I found a nice piece of land for $17k and bought it with ' cash ' .

I could go on , but won't, that's my story of getting my 1st home .

I totally agree, too much is given in ' house and land ' packages today, all the mod cons instantly .... it'll break your bank and your pay packet real quick if things go wrong.

Col.....

[multiweb]

:lol: Nailed it on the head. :thumbsup:

[casstony]

IMHO, blind Freddy can see housing is in an epic bubble which will pop at some stage; as always timing is the difficult part.

Youngsters buying in Melb or Sydney now are turning themselves into debt slaves and the bankers are rejoicing; better to find another option such as staying with parents or living in a caravan until prices return to the long term trend.

[AndrewJ]

One other thing that a few friends with older kids in this race have noted is in many older areas, people no longer buy in low and then move on, they redevelop the small rundown place into a block covering monster.
After a bit of digging they found out that the cost of moving on when they had saved some more is now so high, its not economical to do it.
As such, all the smaller houses are simply disappearing.
IIRC, they quoted that for a median house, the fees/charges/duties etc can now easily represent a years salary.

Andrew
PS Another comment i got back from one of the kids was that when my generation bought their houses, they had full access to all of their salary, thus could pay off any loans quicker and reduce the long term interest loss.
These days, super is taken from them at the time they need it most to pay off the loans, thus exacerbating the time taken to pay off and hence the extra leeching of interest fees for many more years.
I hadnt ever thought of that effect of super.

[Paul Haese]

Well if you want all the really cool furniture, electronic devices, brand name white goods, a mod con house when you could have a basic house too with no landscaping, just basic furniture and just have to work at doing that yourself it would be a hell of a lot cheaper. Buying established homes close to the city has always been out of the reach of young people. It is not something new. Yes you will be paying for someone else's mortgage like all of us have done at one point. I did not get my first home until I was 35 and it was a unit. I owned a piece of land in my 20's right at the time interest rates went to 18%. I was paying out half of my income a week to pay for that and pay rent and walked to work each day, rain, hail or shine. I saved for things prior to just going to buy them and never once would have considered interest free repayments. The more of those repayments that are present in your life the less money you have to save for a loan. Think about other costs too that are luxuries that impact on saving. Mobile phone, internet, coffee, lunch etc. Those are luxuries and help to produce the high expectations that many now have. Don't worry, if a decent recession comes along the price of housing will drop but then everyone will be out of work.

[multiweb]

Nah... just nimble it! :lol: Or wallet wizard it.

[andyc]

The point is Paul, that your basic house, unit etc with no trimmings has become twice as expensive relative to income over the last 25 years. That's just the data... It's amazing how many Aussies don't appear to grasp the implications of this. The reasons for this have nothing to do with a person's lifestyle choices, if they save well/badly, don't take out stupid loans for toys, or get their furniture from Salvos (quite good sofas!). It is because house prices have risen far faster than wages, to the point at which many very hard workers are priced out of the market.

Perhaps, you can point me to data that shows 2015 house prices are the same relative to average wages as they were when you bought your house/land? Then we can have a conversation about lifestyle choices or if people work hard these days...

[FlashDrive]

If I was looking for a house today ( and could afford to ) .. I would get a reputable builder to build me a house to ' lock up ' stage .....NOTHING ELSE.

No curtains ( can always hang sheets ) ... no paint inside or outside ( do it yourself over time ) ... no floor coverings ( they can come later )....no laid out ' turf ' .... no concrete driveways ( lay down some granite to cope with the wet weather...won't get bogged that way ).

You've got yourself a ' bare ' house with no ' frills ' ...and a heck of a ' savings ' on the Mortgage .

Do all the ' extras ' over time and do it yourself ( help from friends if necessary )

.... you can go one better ( if conditions are favorable ) ... be an ' Owner Builder ' and have some good mates who are Plumbers / Electricians.

For those who have done it either way, they have ' saved ' $$$$$ thousands..... ( and I know a few people who have done this )

Col...

[Hagar]

Funny you quote figures like this. The same house I bought in Craigieburn sold about 12 months back for $425K a fair jump from the $40K I paid for it in 1980. Then again my salary in 1980 was less than $100 take home as an electrical tradesman. The same tradesman today earns in excess of $1000 take home.
You should try and employ a tradesman for less than this. It's near impossible.

Which ever way you look at it it's just about even. The minimum wage is now around $700/ week.

It does seem to me to be a lot of keeping up with the Jones and having to be bigger and better. My kids would not even consider a tiny house like I started with and would not sleep on a mattress on the floor until they could afford a bed.

What is going to happen when interest rates start to climb again? When I bought my first home it was 9.25% and within a few years interest had jumped to 18%. If this happens again there will be a lot of cheap houses on the market.

What advise do you give your kids?

[multiweb]

You just have to check how many credit card/debt recovery services, etc... are advertised on TV. People spend the money they don't have. They get in debt. It's the new "normal". House prices have risen a lot but interests have dropped a lot too. Borrowing money and large amounts has been made very easy. Back in the day you were limited in the amount you could borrow and had to come in with a substantial deposit. Is it harder to buy a house today? Nope. You just walk in the bank, borrow half a mill and get all the trimmings. Is it dearer. Hell yeah! Doesn't mean common sense shouldn't prevail. If you can't afford it rent. If you can afford it, start small and work your way up getting out of debt as you move along.

[strongmanmike]

Hmmm?...sorry but couldn't help myself - for the Yorkshire men (https://www.youtube.com/watch?v=VKHFZBUTA4k)in this thread

:D

[multiweb]

Sooo.... 40 years later you're still sucking on a piece of damp cloth? :lol:

[strongmanmike]

Soaked in Chateaux le Shaseler :)

[multiweb]

Sucked on Chateaux La Pompe 1932 for years myself. Like the Aussie Merlot and Shiraz way better. Life is good.

[Larryp]

This is what my first wife and I did, Col.
No curtains, no floor coverings etc until we could afford them.
And I used to drive 40Km to work each day, because that's where I could make better money.
It was quite common in our neighbourhood at the time, to live in an unfinished house.

[sn1987a]

Cheaper option! :D

http://www.liveleak.com/view?i=eb0_1434780367

[andyc]

Doug, personal anecdotes are not a great way to objectively identify what is happening here across the population. Look at the graph in this link (http://www.abc.net.au/news/2015-06-02/janda-why-housing-affordability-isnt-being-fixed/6514766). House prices are far outstripping wages growth across the country. [maybe less so if you're a tradie, building and fixing houses!] Tradies & builders do really well out of a housing boom (and a heap of 'home improvement' soaps on TV) - they are not representative of wages in the full workforce. I saw this firsthand with my dad in the 1980s and 1990s in the UK.



Marc, that's all easy to say, but personal credit card debt doesn't explain a relative doubling of house price. Easier mortgages might explain some of it, but that's spectacularly unsustainable - see the UK and USA around 2007-08. You can't 'start small' today, unless you want to start 50% smaller than your parents generation of 25 years ago. You'll probably also be further from your work, so spending more income on travel. Sensible rules such as borrowing no more than 3-4x your salary don't buy you what it did in those days. Part of the reason is that you are more than likely competing against investors rather than other homeowners, as the data shows.

[tlgerdes]

I think they have been misled on that one. When compulsory super came in in 1992 (and when it has been increased), the employer had to increase wages by the amount paid (originally 3%), it did not get deducted from the employees base wage.

[multiweb]

I realise this but you still have a choice. Buying a property is only if you can afford it otherwise you rent. Plenty of people do that. Nothing's wrong with that at all. And yes you do need a bloody good paying job to buy a house these days. You can start small. Buy away from the CBD, or a small unit to get in the game. Own it, then move on. Small steps, small risks, small earning but it all adds up. There's enough land and room in Oz for everybody. Housing pricing will go down and become more affordable again. Interest rates, well, they're as good as it gets right now and people who stretched themselves thin are going to hit it hard.

[AndrewJ]

Gday Trev

I never got a "payrise" Plus super when it came in, i just didnt get a "payrise" the years they adjusted super. ie Even as the super percent increased over time, it has always been ammortised into the total wage rise, it was never increased along with a full pay rise. ( That only happens if yr a Pollie ).
Sooo when comparing pre 1992 wages and prices vs current wages and prices, the kids are currently on a 9% hiding when it comes to free cash that they can use to mitigate long term interest drain.

Andrew

I should add that with some of them, if they had the extra 9% available now, they would probably blow it, so super may be a better bet :D, but for those who can manage their money, its just that bit harder.

[tlgerdes]

The seeds of Sydney's housing crisis started in the early 70s, with the lack of investment in transport infrastructure and the belief that everyone would work "in the city". It was exacerbated in the 80s and early 90s with a decentralisation of industry, again without the necessary transport infrastructure. All of Sydneys transport infrastructure is still predicated around everyone wanting to go to the city or through the city.

We then allow them to build new suburbs and at sometime later decide to build transport (look at Sydneys northwest/southwest)

If you could get across the city, say from Liverpool to Hornsby, blacktown to north ryde, or Hurstville to Parramatta inside 60mins in peak hour (that's about 40kms hour) then we are on a winner for homebuyers. I live 13kms from the CBD and it actually takes me less time to drive to the CBD than to take public transport (45mins v 50mins peak hour, 25mins v 60 mins off peak) due to inadequate services.

People pay a premium to live near where they work due to the time constraints, this pushes up prices for geographically beneficial locations, this has a flow on effect to neighbouring locations, which flows on to neighbouring locations etc etc etc.

But we as caring humans would rather have the government save the 3 legged bandicoot habitat in Mullumbimby, provide multi-racial tolerance co-ordinators to all schools, LGBTI equal opportunity service centers (link (https://www.google.com.au/?gws_rd=ssl#q=*******%20gay%20bisex ual%20transgender%20intersex)) or whatever social or environmental inclusion policy, than build appropriate transport infrastructure (link (https://www.google.com.au/?gws_rd=ssl#q=westconnex))

[tlgerdes]

You are so correct there



As a "wise" :lol: user of money, I haven't noticed this part.

[leon]

When we first bought our house it too was only 13 squares and that included the car port, we had sheets for curtains for years and I built the yard and all the extras in my spare time before and after work. :)

People tend to over borrow instead of buying modest. :shrug:

Leon :thumbsup:

[multiweb]

Funny you mention that. You know why we have so many audit fees on SMSF now? Because 1000s of people used to default purposely on their home loan repayments until they got the third dreaded letter from the bank then went to their accountant with it and unlocked their super to lower the principal on their property. After so many cases of abuse they closed that loophole and now we're scrutinised for every buck/interest we make in our funds and charged accordingly.

[AndrewJ]

I say Double or triple the charges.
How are all these poor accountants and white collar criminals in the finance system going to maintain their lifestyle and buy their houses unless you pay more:scared3:
Andrew

[clive milne]

Ohhh, I don't know Andy... as long as you include an expression of the signal to noise statistically inherent in a sample of one... that being:
signal = 1
noise = square root of 1

Therefore, signal = noise
ie) a sample of 1 is meaningless.

[multiweb]

Yeah, that's always baffled me that they charge that much to "oversee" money I can't use until I reach 70. I mean it's compulsory and self funded right? As I'm self employed, every buck I put in there, 9% or other, I still have to go out and earn it, right? Nobody is giving it to me for free. Maybe I should not worry about it, spend the money, live the life and when retirement age comes around, go back on the system's safety net and "demand" my due, my pension and whinge with the rest of them all. :lol:

[AndrewJ]

Gday Marc
I think you are missing the underlying problem. ( they are brilliant at this )
The financial industry can only survive if it has money to churn ( for a percentage ) or a big pile of static money that they can nip fees off the side when no one is looking. They can only do that from people who have actually saved money.
I stopped putting money into super as soon as i could and invest it externally myself.
I reckon in a few years when the finacial situation in Oz gets worse, super will become the feed stock for everyone who needs some money, and there will be nothing you can do about it.

Andrew

[Hagar]

Terrific Andy another graph. The figures Quoted are FACT. This was a property I actually owned. It was a job I actually had. It was relevant because it was what I was quoting where your graph takes into account the luxury end of the market along with the low end. Not to many 20 year olds who can afford to buy the multi million dollar houses that are included in this graph. It is representative but is just another excuse for wanting to have it all in the start.
If everyone started with sheets on the windows, no carpet, basic appliances as others here has stated then amazingly house prices in the outer suburban areas would seem much more affordable. Not everyone can live within walking distance of the CBD.

[multiweb]

I'm pretty sure it will. The deal is that we pay taxes now so we get it tax free after the age of entitlement but I reckon they'll tax us on the other end, so we can feed all the whingers.

[bugeater]

Yes that's right, all young people are lazy and expect the world handed to them. Therefore, when they complain housing is unaffordable, it isn't really, because they lazy and want everything now.

Have I summed up the general argument? :shrug:

Victim blaming at its finest.

[Hagar]

I don't know that anyone is a victim.

[Neutronstar]

My story is about the same as the OP.

We bought a fibro board house that was tiny at Woodville North in Adelaide. Many people I knew would not have even lived in that suburb as it wasn't considered highly. It was a good street. We paid $50K for the place in 1985. Many people had better shacks up the Murray than that house, but we were as happy as, just to have our own place. I still remember the gold carpet we had. We painted, improved and cleaned and did the garden up.

We scrimped and saved and eventually moved on, then scrimped and saved some more. But we still don't have a mansion, but I don't have a huge loan either. These were the days before mobile phones, internet fees and all the other new expenses that want a slice of the pie that is your income.

The key to getting financially well off is not to borrow for personal things unless you absolutely have to. Live within you means. A car or house is ok but youngins these days borrow for holidays overseas, iPones, 80inch TVs you name it. Save for it and buy it outright is my advice.