The great Australian/USA Dream
The “Great Australian Dream” is pretty similar to the “Great American Dream”, to own one’s own home . . . a place of security and safety for one’s family.
Following World War II, patriotism and a desire for security, as well as favourable economic conditions and government policy, prompted people to put down roots. The rate of home ownership boomed, rising from 40 per cent in 1947 to over 70 per cent by the 1960s. So, like the “American dream” of prosperity and success, Australians too have been driven by the desire to secure their future and invest in a home of their own. (source)
However, in recent years (certainly in Australia) owning one’s own home is becoming increasing more difficult and the cherished symbol of homeownership is fast slipping from the reach of many ordinary Australians. Homes are becoming more and more expensive and has exceeded growth in household income (as seen in the graph below). It is important to note that I am not referring to the high end of the real estate market — in many areas (such as where I live or in a city like Sydney), an ordinary three bedroom homes with nothing fancy is expensive — $500,000US is not unusual for something basic.
Australia has one of the least affordable housing markets in the world. The 2011 International Housing Affordability Survey conducted in Australia, Canada, Ireland, Hong Kong, New Zealand, the United Kingdom and the United States showed that Australia was the second most expensive of these countries, behind Hong Kong.
For those who have bought into the housing market, many are suffering “housing stress” (the ratio of housing costs [mortgage] to household income with greater than 30% considered unaffordable) and as a result are struggling to meet their fortnightly payments. For some families, mum has no choice but to work as two incomes are desperately needed to pay the mortgage and other bills. These families, and there are many in this situation, are not working for luxury holidays or new cars, but to simply keep a roof over their heads. Downsizing or living more simply does make a differences (and often a necessity anyway), but when your mortgage is $500,000 many families don’t have a lot of choice or room to move. On a loan of $450,000 a fortnightly repayment is $1,244.00 is a lot of money to find each fortnight.
Nearly 1 in 10 buyer households spend at least half their after-tax income on housing. These households are at serious risk of financial difficulties, especially if family or economic circumstances were to change. For renters, it is around 23% — so renting is not always an option to get a family out of financial stress. Young families are the most vulnerable to housing stress as they often have the lowest incomes, mum is often out of the workforce and the added costs of young children. Only last week a report was released that said that renting in the city I live in was too expensive for poor families, therefore if you are a low income family and need to rent (as you can't afford to buy), renting is also almost out of reach.
However, for many younger workers, the casualisation of the workforce, is also affecting the ability to buy a home and pay rent. Casualisation has increased dramatically over the last generation. Many more workers no longer have any job security due to the fact that they are not permanent full-time workers, this is particularly the case in the hospitality and retail industry. They also do not receive any pay for days when they are sick or take vacational leave making it difficult to pay bills, rent or mortgage. They can’t be sure that their employment and income will extend past the end of the month.
Australian house prices are simply so high that for many Australians the great Australian dream is just that — a dream. For those who do manage to purchase a home, high house prices mean taking on very high levels of debt that will constrain their lifestyle for many years into the future.
So what’s the answer — there isn’t a simple one as we all need a roof over our head and its important to not judge families and make assumptions.
- If the family can move to a cheaper location, such as in a rural area (and still find employment) that is great option as many rural areas are much more affordable. However there can be a down side to moving: some families do not want to move away from family and friends, there is less services plus many rural areas have higher unemployment compared to the cities, making find a job more difficult. Whilst buying on the fringe of cities does result in a cheaper home, the cost of transport to work can be expensive and it will result in my time away from home.
- Buy a small house or apartment as the first home -- we don't really need the big houses that many people are buying these days. Once a three bedroom home was suitable for most families, these days people want 4 bedrooms, rumpus rooms and other options that push up the price of the home.
- Cutting back on utilities is also one way of making ends meet — don't waste power and water, watch the temperature when running the heating, have short showers, unplug electoral items when not in use, don't have all the lights one etc... All the normal things that most people these days are doing.
- Reduce the number of meals out (Australia's are quite big on eating out and buying take-away). Make lunch for work and not buy as that is expensive. Likewise at home cook basic meals from scratch as they are so much cheaper than buying processed foods. Eat less meat (something else that is pricy) and if possible, grow your own vegetables as that helps with the costs.
- Buy second-hand — many new couples want to buy new furniture, however, used furniture is a cheaper option in the long run and when money is less tight, upgrade gradually. Extend the second-hand purchases to clothing, children toys, baby items etc..
- Run only one car instead of two, saves on petrol (which is far more expensive here that the US) and insurance. Ride a bike. Even running a motor bike is cheaper than a car.
- Moving back in with mum and dad is an option for some young couples as it is often a cheaper option compared to renting.
- Instead of buy books ands movies, do what I do and borrow from your local library. I buy very few books these days and don't buy films unless I have already watched it and decided it was worth buying.
- Take advantage of the low interest rates and instead of altering the fortnightly payments, pay the same amount and get ahead of the re-payments.
I am sure there are many other ways to stretch the budget, however for some families (in some locations), regardless of the savings, paying the mortgage each week is a struggle and two incomes are required at least in the short. Sadly, it is now a fact of life for many.