The Cost of New Houses

[Hagar (Doug)]

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 (Marc)]

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.

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]

Originally Posted by 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

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 (Russell)]

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@....e)%20to%202101

[traveller (Bo)]

Originally Posted by Hagar

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. .

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.

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

[Dealy (Kev)]

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 (Marc)]

Originally Posted by 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.

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. 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 (Andy)]

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 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, 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' ]

[Allan_L (Allan)]

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.)

Originally Posted by 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.

[AstralTraveller (David)]

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/2015-06-1...ricket/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 (Poppy)]

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 (Marc)]

Originally Posted by 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.)

Nailed it on the head.

[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]

Originally Posted by andyc

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...

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 (Marc)]

Originally Posted by Paul Haese

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.

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

[andyc (Andy)]

Originally Posted by Paul Haese

... 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.

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 (Poppy)]

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...