Australian houses are as affordable as they have always been… but only because we’re all working so hard.
What if I told you that Aussie households spend as much on their mortgage now as they did back in 1982?
Would you believe me?
It flies in the face of conventional wisdom, right? What about our affordability crisis? What about our record debt levels? What about us having some of the most “over-valued” housing markets in the world?
How can it possibly be true?
But it is. Today, the average Australian household spends about 30% of their household income on mortgage repayments. That’s about where it was all the way back in 1982.
So how do we make sense of that?
Well, the first key factor is obvious – interest rates.
Interest rates are just a lot lower than they used to be, so for the same level of mortgage repayments, you can afford a much bigger mortgage.
The structural decline in interest rates is one of the keys to understanding Australia’s multi-decadal property boom.
But it’s not the only one.
The other key ingredient is women.
Well, specifically, it’s women’s increased labour-force participation. It’s the rise in multi-income families.
In the early 80s, there was only a little more than one income earner per household (a ratio of 1.05). That ratio has steadily increased so that there are now 1.2 income earners per household, on average. (If you had 100 households, you would have 120 income earners).
(And remember this includes the effect of zero income households – retiree couples etc.)
So the actual number might not be surprising, but the key thing to note is the direction of the change.
There has been a fairly dramatic increase in the number of multiple-income families.
And this is one of the reasons why mortgage repayments as a proportion of household income, has remained fairly steady over the years.
Putting it all together, this chart looks at the share of multiple income households in blue, and mortgage payments as a precent of household income in pink:
But this is the thing with all this.
When women joined the labour force (which just for the record I’m a huge fan of), it wasn’t a case of sharing the work around.
Men didn’t share the work. As a society, we just created more work.
And then cycled the productivity gains in to higher house prices.
To see what I mean, take out this comparison on household hours, by gender. It’s taken from an American study, but I’d be guessing the results would be pretty similar here.
For women, it’s the story we all know. Paid work increased from an average of 9 hours a week to 25 hours, between 1965 and 2016. Housework went from 32 hours down to 18.
But look at what happened to men. Paid work fell slightly (but only slightly), but there were substantial increases in housework (4 hours to 10 hours a week), and childcare (2.5 hours to 8 hours).
I’m not trying to make a comment about how equal we are as a society or anything, but I do want to say that something here doesn’t add up.
Women are working more, and men are doing more on the domestic front.
So we are all working more.
That’s a bit of a stuff up isn’t it?
For all the technological advances of the 21st Century, we all just end up working more..?
But you know, at least we’re not spending more on our mortgages.