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. 


    *****

    Comments

    1. I am very thankful that we own our own home in Sydney! But I wonder for the future, for my children. Of course my 5 year old daughter has it all worked out - she will live with me forever - even when she is married, and will look after me, so she won't need another home!!!!! ;)
      I am sure there are many choices that families can make - even down to what brands you buy of food, which can cut costs. And entertainment outside the home is a big cost, especially if one expects it ALL the time - far better to make it a treat, and in the meantime enjoy the simple pleasure of home life, libraries, local parks, etc. There are so many beautiful places in this country - we don't even need to go overseas and spend lots of money to have a wonderful holiday...
      love,
      Bets

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      1. If Miss Five wants to continue to live with you, you might have to build up to accommodate a husband and children !!! Otherwise it may get a bit squished!!

        Many new home owners like to keep living the way they use to before they bought their homes, but one can't when you have a large mortgage to pay. And I can not figure out how they afford all these overseas trips, I'm on a good income and I can't afford an overseas trip :((

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    2. For us, it is a blessing that we struggled in our early years together, bought only what we could afford and paid it off completely. Now we are in a fairly safe position. I really worry for people with enormous mortgages that are only one pay day away from not being able to make their repayments. I would be terrified and stressed every day if I was in that position. But houses are just SO expensive, even in our small country town in Victoria. I think eventually the bubble will burst as surely people will not be able to continue buying these expensive houses when incomes are not increasing at the same rate.

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      1. It must be scary for many families not quite knowing how they will pay the mortgage and have no spare money for emergencies. I do wonder how my son and his wife will ever buy a house or find themselves renting for years. And the houses really aren't worth the $$$$ they are being sold for, its quite silly. We bought ours when the market hit rock bottom and got a bargain, but we don't want that to happen again as the economy was in a very bad way at the time.

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    3. I had no idea that Australia had such a difficult housing market! I can only imagine how difficult it must be to own a home there, and your ideas on stretching a budget are classics, and most certainly will make a difference. Good post!

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      1. Its very tough for many young families and I do worry about my sons and how they will cope in the future :(

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    4. Another excellent post, thanks for sharing it at Good Morning Mondays. Housing is so expensive, but much more affordable in rural areas. Blessings

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      1. Thanks Terri - I agree that rural is much cheaper but it can do difficult to find employment - not an option for us. Have a wonderful week.

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    5. It really is so hard to buy a home, especially on a single income. But, if it is possible, it is so much better than throwing money into renting... it's just that it's not always possible for everyone. I do hope the market doesn't keep climbing; it seems ridiculous already!
      Funny how our ideas change as we grow up - at this age my two talk about buying an ISLAND when they grow up!!!!! But really, there's nothing wrong with childhood dreams. ;) Everything gets serious & responsible soon enough when reality sets in!!

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      1. I was only talking about buying a castle today !!! We all can dream :)))

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    6. This is a subject upon which I'm afraid I have quite a few opinions. :-) My biggest complaint here in the U.S. about much of the newer building going on is the excess. The houses are so big (including very high ceilings in many of them) that not only do people have more space than they need, they also have more to clean and it takes more utilities to light, cool, heat, etc. (And the houses are often ugly from the outside, looking like a lot of toadstools in housing developments.)
      I don't understand it. I look at some of the larger houses and wonder what the people will ever do if utilities become extremely expensive or limited. Growing up I saw plenty of modest family dwellings that were built in the 1920s-1960s (approx.). I know people can live comfortably with less space. Sure the bigness gives a feeling of luxury, but is it really prudent? The economy here in the U.S. is shaky at best. Some areas are still experiencing "bubbles" like you have there - though not as severe. When the bubble bursts, the housing values fall like rocks, putting some people into disaster. Yet, some building companies don't even offer a *nice* small home in their line. If you want a really nice house, you're expected to want 3000 square feet - to keep up with the Joneses and to appear wealthy. It's really ridiculous.
      I'm not sure I want to live in a tiny house, but I'm am following that movement with great interest! :-) It is saving people from homelessness that might otherwise be living in very difficult situations.

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      1. I have to agree with you - some modern houses are huge with all sorts of extra rooms such as entertainment rooms that really aren't necessary. It also seems to be the trend to buy 4 bedroom homes for so there is a spare room for guests, whereas once upon-a-time a three bedroom home was just fine and children often shared. These days children rarely ever share a room and its often frown upon or seen as odd. The other problem is the need to buy new furniture and not be satisfied with second-hand until a family can afford it. As a result families get into bigger debt because of these extra purchases.

        It is a pity that there aren’t more different size homes on the market to cater for different types of families and ranges of prices to cater for different incomes. But sadly, real estate isn’t about doing the right thing by the consumer, its about making lots and lots of $$$$

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    7. I had no idea the housing market was so rough in Australia. We live in the Southeast of the US, and housing prices vary from the city to the more rural areas quite a bit. Still it's nothing like Silicone Valley where a 2br townhouse runs $500k US. You've got some good tips for people trying to pursue home ownership.

      Thanks for sharing with Small Victories Sunday Linkup. Pinning to our linkup board and hope you found some great posts to visit this week!

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      1. It usually surprises people as they often think Australia is a cheap place to live - whilst it is in some areas, it isn't in areas where all the jobs are. In our largest city - Sydney, $500 US would probably also buy a 2 bedroom townhouse/apartment.

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