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Baby boomer vs Millennial - How does age affect buying a house?

Last Updated May 9, 2017 · Written by

Property Investment|Buying a House

"Baby boomers had it easy" younger generations say. When it comes to buying a house, they may be right. It's no secret that houses in Australia are amongst the most expensive in the world. It wasn't always this way. In the post-war era and up until the late 1980s, almost anyone with a job could afford to buy a house. Today it can be much harder.

  1. Why is Housing so Expensive in Australia? 

  2. Median House Prices: How They Have Risen

  3. Wages versus House Prices

  4. Who is Buying Real Estate in Australia?

  5. Is the Australian Dream Fading for Gen X, Gen Y and Millennials?

Why is Housing so Expensive in Australia?

According to an article in Business Insider, Australian real estate is expensive for six reasons:

  1. Housing is expensive in cities with populations over a million in most parts of the world.

  2. Many outer suburbs are poorly serviced with roads and transportation links. Australians choose to spend more on housing to save on commuting costs.

  3. Australians tend to live in larger houses and apartments than other countries.

  4. Australians are amongst the highest income earners and can afford to live in more expensive homes.

  5. Australia has a housing shortage, which pushes prices up.

  6. Australia's taxation system encourages investment in housing.

While these may be the reason for Australia's expensive housing, it is still harder for younger generations to afford housing. Wages have not kept up with the increase in price of housing and it's impossible for many first home buyers to purchase a home in a major Australian city.

Median House Prices: How They Have Risen

We don't need to go back to the 1950s to see how much house prices have risen. Just over 40 years ago, in 1976, these were some of the median house prices in major cities across Australia:

  • Sydney: $36,800

  • Canberra: $35,100

  • Melbourne: $32,900

  • Adelaide: $29,800

  • Hobart: $31,575

  • Perth: $33,000

  • Brisbane: $26,275

Even as recently as 1997, the median price of houses in Sydney was just over $200,000. By the year 2000, they were up to around $350,000. In March of 2004, prices peaked at $566,000. Prices leveled off after that, but started surging again in 2009. They haven't stopped rising since then, except for a slight dip in March of 2016. Following that dip was another surge in prices.

Median house prices have risen

What are the median house prices today? It's hard to keep up with them, but the most recent prices are:

  • Sydney: $1.1 million

  • Canberra: $685,000

  • Melbourne: $826,000

  • Adelaide: $501,166

  • Hobart: $382,888

  • Perth: $573,766

  • Brisbane: $540,758

Sydney and Melbourne are the highest priced cities, but younger Australians looking for their first home can't afford to buy in most major cities.

While it seems there must be a cap to the housing market, prices throughout Australia went up by 3.4 percent in the December quarter of 2016. In Sydney, the least affordable major city, prices went up by 4.7 percent in the same quarter. In Melbourne, the second most expensive city, median prices rose by 3.6 percent.

Keep in mind that median house prices are just the midway point. Some houses in Sydney cost far more than $1.1 million and houses you would think would be more affordable may cost the median amount. For example, many unrenovated terrace houses are for sale at the median price in Sydney.

Housing prices

Wages versus House Prices

If wages kept up with house prices, Generation X and Y wouldn't have to worry about finding an affordable house. Back in 1976, the average wage was $6000 per year, but that doesn't make up for the rate of growth in median house prices. In major Australian cities, house prices have climbed approximately 3.2 percent per annum. Wages have only grown by 1.2 percent. In some major centres, median house prices have risen even more than 3.2 percent, but wages are relatively equal throughout Australia.

Wage versus house prices

Another way to look at it is comparing the surge in house prices with the rise in wages. Sydney's median house price is 27 times higher than in 1976. If wages had kept up with the surge in house prices, the average wage today would be $162,000. That's a lot higher than the current average wage for full time employees of just under $79,000. And averages are just averages. Many full time workers make much less than $79,000.

Despite these statistics, houses are still selling in most major cities. In Sydney, the auction clearance rate is 81.1 percent. That is the highest clearance rate in Australia, but Melbourne is just behind Sydney with a 79.9 percent clearance rate.

Who is Buying Real Estate in Australia?

Since many Australians can't afford to buy homes in major cities, who is buying them? In many cases, it's Australians who have homes to sell and want to move to another location. They got in early and benefited from the growth of the property market.

The Australian dollar is low compared to other currencies. This makes Australian homes affordable to foreigners. According to one source, 11 percent of homes in New South Wales are being sold to foreigners. The Chinese are the biggest buyers, accounting for one-third of the foreign-purchased homes and other buildings. This is in spite of a new stamp duty of 4 percent for foreign investors.

New Zealand and Great Britain investors are next in line, with 11 percent each. India follows at 10 percent and South Korea, Vietnam, the United States and Indonesia are taking 2 percent of foreign-purchased buildings. Buyers from Nepal and Malaysia are buying 1 percent of foreign-purchased houses and other buildings.

Is the Australian Dream Fading for Gen X, Gen Y and Millennials?

In 1976, Australia was different than it is today. Back then, usually only one person had a job. Today, most couples both work, so they have more disposable income than in the past. That still doesn't make housing affordable in places like Sydney and Melbourne.

Australian real estate dream

Others are looking further afield for affordable housing. For example, the Mornington Peninsula is just an hour's drive from Melbourne. In some suburbs, houses are more affordable on the Mornington Peninsula. The median price of a home in Rosebud is just $471,000, making it an affordable suburb for many Gen X and Gen Y Australians.

Sydneysiders, too, are looking for affordable housing further afield. They are finding affordable housing harder to find, though. The Sydney price surge has made the Central Coast, Blue Mountains and other nearby areas less affordable as more people look for affordable housing outside of Sydney. In 2016:

  • Blue Mountains property surged 17.8 percent

  • Wollongong housing rose by 15 percent

  • Property on the Central Coast rose by 13.6 percent

Home ownership has been the Australian dream for generations. Baby boomers had to work to afford a home, but homes were affordable for them when they were the age of Gen X (35+) and Gen Y (25+). Millennials (born after 2000) may have it even tougher than Gen X. They are still in school and now face college fees.

It may not be all doom and gloom for Gen Xers, Gen Yers and Millennials. Housing bubbles have been known to burst, so homes may become more affordable in the future. Most Gen Xers and Gen Yers are computer savvy and some have found ways to work online, either part-time or fulltime.

Others have taken jobs in highly paying trades and have become plumbers, electricians or builders. Trades are skills you can take with you and many Gen Xers and Gen Yers who have taken the online or trade route have found affordable housing in areas away from major cities.

In spite of this, statistics show that home ownership is falling. In 2002, 57 percent of Australians were home owners. In 2014, the number dropped to 51.7 percent. Gen Y (25-34) homeownership declined from 38.7 percent in 2002 to 29.2 percent in 2014. Current statistics are unavailable, but the decline has probably continued.

We often read inspiring stories about Gen X and Gen Y couples who make sacrifices and succeed in life. That can be true for some, but statistics show that incomes are not keeping up with housing affordability and homeownership is declining. What the future holds in store is anybody's guess, but it's safe to say it is tougher today for younger Australians than it was for baby boomers.

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