Australian affordablity

Once there was a lucky country called?

Nick - I hope your sallary has been adjusted to take account of the almost 1/3 devlauation in the pound.

Australia is a very expensive place for Brits at the moment - at least until they are earning dollars.

Funny how life changes - it was precisely the reverse ten years ago.

Question is will it have changed again in another decade or is there a long term shift going on?

Prices 'round here seem to be fine, same as they've been for a decade.

Ahh, I see - I don't live in a city ;)

Right, off to the pub. Time to honour our war dead by getting on the grog, gambling and watching some footy... maybe a meat pie as well.

Originally from Oz and now living abroad I visit relatives about once a year - last time was February and I have to agree with this assessment. Yes the Oz dollar has strengthened while the pound has been run into the ground in comparison, but there is no denying sky rocketing prices, particularly in major cities.

Eating out is what hits you first - and average meal in a small restaurant/cafe will cost around $50-$60 for a couple compared to a comparable pub meal in the UK at about 25-30 pounds (these are west country prices but I am comparing prices in rural Oz). Grocery prices are consistently either UK prices, or slightly more, particularly staples like milk and bread. Meat is still cheap - except for lamb which seems to have climbed since my last trip.

However, what hit me was the housing. My folks live on the Sunshine coast and there is a real mind set of rip it up and tarmac it over with rampant housing going up in all directions. It seems that much of this is speculation (with rumours of significant Chinese investment). We saw a similar pattern in the UK with the buy to let and investment markets driving the growth in prices. When people woke up to this, the bubble burst. In Melbourne there was a lot of bubble talk amongst friends and relatives with many concerned about overpriced housing - very similar to what was being discussed in the UK just before the crash. Recession proof - lets hope china keeps buying. Should their economy overheat (which it shows every sign of doing), lets see how recession proof we really are...

Currently on hols in England and Scotland and can't get over how cheap things are -even based on a 2:1 exchange rate. There's such an oppotunity for UK companies to fill gaps in the australian market and be able to do so at much reduced prices - e.g M&S, Waitrose, John Lewis, Argos, Boots, Mothercare, TK MAXX, Matalan, H&M (although this might be danish)...

I travel to my beloved Oz two or three times a year on business and always combine with seeing friends who moved there six years ago. As a Pohm with a retirement plan, I'd dearly love to retire down under but in the last couple of years, it has become ridiculously expensive. I've gone from $2.5 to around $1.5 in what seems to have been a short pace of time. I won't be going back until this improves because I hate to feel like I have to watch what I'm spending on a beer whilst I'm on holiday.

None of this is the fault of the Aussies of course. Sterling has crumbled and Brits will find most destinations a lot more expensive. I work in the travel business here and I know outbound tourism to Oz is on its knees. It's going to take a weak Aussie dollar to put that right and there is no sign of that happening.

you have a look at what a housing bubble can do to people and an economy by looking at what happened here in the US. all the forclosures, people bankrupt and the economy in shambles, they say the housing market won't be back for several more years. all based on greed greed greed, everyone wanting to get in on the easy money through housing speculation.

Everything has its price and the price of Australia’s economic success is a high AUD. The RBA raised interest rates to a high level to try to cool the economy down, so far without success. It has just helped to push the AUD even higher against other currencies. It has yet to dampen demand for natural resources, in part because the contracts for such products are usually priced in USDs. The resource producers can mitigate the impact through currency hedging.

In the meantime, there are winners and losers. The former are most Aussie consumers when buying imported goods and Aussies travelling abroad. The latter would include wine exporters and the tourist industry which is seeing far fewer foreign tourists. These forces will produce a growing trade deficit which puts downward pressure on AUD exchange rates despite the high interest rates. Housing is clearly in a speculative bubble in many urban locations and all bubbles eventually burst with painful outcomes.

My two sons own comparable terraced housing type homes in areas being gentrified and near the CBD in Toronto and Sydney respectively. The former is currently worth much less than half the price of the latter when adjusting for exchange rates. Canada also has a booming economy with a large resource base. The big difference is that the Central Bank of Canada has managed to keep the interest rates very low - so far. Therefore, even though the CAD is high compared with most other currencies, that’s not the case with the AUD. One year ago it cost 1.07 AUD to buy 1.00 CAD; now it only costs 0.98 AUD.

Such imbalances eventually correct; the big question is “when”. In the meantime for Aussie travellers abroad, enjoy things while you can. For Aussies for whom a lower AUD would be advantageous, just keep electing Gillard and Co!!

I think some here may have misunderstood what Nick means by saying Australian housing is expensive. He is NOT talking about the cost of Australian housing in terms of the GBP because the pound has fallen - or for that matter when discussed in any other currency. He is talking about the cost of Australian housing for Australians paying in A$ and earning A$ at work.

The customary way to measure the affordability of housing is to divide the average house price (in local currency) by the average salary (again, in local currency). The higher the ratio, the more difficult it is for a family to buy a house. When the ratio exceeds around 6, housing is considered to be "very unaffordable". Ratios in Australia are now well over 6 in all major centres and in at least one instance (the Sunshine Coast) something like 9 roughly. Prices at these levels are absurd and not sustainable.

Only one country in the world has prices with these sorts of ratios and that is Hong Kong. One other city, Vancouver, also has similarly high values but then Vancouver has a legitimate land shortage (water to the west, mountains to the north, USA to the south, and only a narrow protected agricultural valley to the east).

For an explanation of all this, have a look at the Demographia website who produces an annual report on most major markets around the world. It is shocking just off far Australia is off the scale compared to elsewhere.

The Economist magazine also produces regular reports on world housing though they tend to use a ratio of house prices to rents (instead of salaries). Still, Australia comes out on top on this measure as well and they certainly suggest a fall of 30% or more is inevitable at a very minimum.

Incidentally, Chinese have been driving up prices in Australia but reports recently suggest they are now looking elsewhere because prices are so high. Interesting and coincidentally, a story in the Canadian media this morning talks about their influence on the Vancouver market and suggests it is one reason why prices there have continued to rise.

As to the fall of the GBP, it will obviously only make things worse for the Brit looking to move to Oz. I'd be interested to see any figures on how numbers may have been dropped in recent years because of this Nick.

Why would you want to encourage migrants ?All you sheep who have been beaten down by the liberal media sources need to take a trip to the southern states of the USA or France,England these countries are now trying to educate millions of immigrants who don't want to learn the language and cost billions once they figure the loop holes in the social security systems.
That is also not mentioning the additional crime and their own racial problems with in their own communities.

One factor in the boom in house prices and debt is Oz's very high population growth rate, which vested interests, for obvious reasons, prefer not to mention.
We also have a very high external private debt level mainly incurred by banks borrowing funds overseas not to finance infrastucture or industry, but housing construction. Since the debt is virtuous private debt, not evil government debt, nothing can possibly go wrong can it?

" The house price to income ratio is in line with its average over the last decade." 
So,what about the previous decade(s)?


Australians now build the largest houses in the world for smaller families,it's all going to end in tears, both individually and collectively,particularly as the chances of saving some of the benefits of the resources boom seem politically impossible.

Of course the imbalance will be 'corrected',however this event rarely occurs smoothly as economic theory predicts,the result is hardship and unemployment.

There's an 'Ireland' in our future and probably the IMF as well.



#1 Weazel,

The term 'Lucky Country' referred to the fact that Australia was living on its luck-which sooner or later would run out.Typically, Australians reinterpreted the expression.

Some classic examples of Property Mistakes in Perth Western Australia.


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This has all happened rapidly.
Two decades Aus was by any measure an easy place to set up a new life. Today, it is for the well-off only, or those who do not blink to go into hyper-debt. This has all been by design, a situation deliberately created when some genius decided that homes in Oz should be primarily a shelter for tax dodgers and not a shelter for families.
Game players: govt policy makers, interest-chasing banksters, a duplicit commission-seeking RE industry and an agenda-setting fact-avoiding Mainstream Media.
Just add bigger fools. Not enough fools?
Simple, just offer a First Home Buyers Bribe of up to $21,000 (tripled after the GFC so as to allow property investors to off-load portfolios at a premium and in a hurry).

As for the AUD, what a little beauty! Just after the GFC the AUD was at about 60c to the USD, today at about $1.07.
How so? Simple, just save electric power at the RBA and turn off the printing press. In July 2009 $46B currency in circulation*, two years later it is now about $46.9B (compared to about 12% increase in USD). Add high interest rates and bingo, a currency that is slowing destroying local industry.
Now, I will not mention insider trading, but I sense that you are thinking of the same. Some might put 2 and 2 together and come up with the Big4. Add RBA.
Result = rigged casino of a banking system.
All aboard.
All said and done, Oz is still a good place for a holiday but the days of ‘Advance Australia Fair’ (the National Anthem) are over – at least the ‘fair’ bit.

See RBA D3 data series Monetary Aggregates*

At the start of the 20th century, Australia had the highest per capita income in the world. As I understand it, commodities were in high demand, wool wheat gold etc and with its relatively small population it's easy to understand why it boomed.
Then, it's terms of trade fell. Manufactured goods became more profitable than primary production due to the explosion of personal consumption and the advantages acrueing to the early manufacturers and their closeness to large populations. Commodity prices went in to long term decline until recent decades.
Now that the bamboo and the iron curtains have been removed, manufacturing of most goods has moved to these places offering cheap labour and have themselves experienced economic booms.
Now it's commodities again in great demand.
Australia has an abundance of energy and mineral resources, with massive new markets to our north, it exports more than half of the food it produces and still has a small population.
Australian property prices are most sensitive to interest rates which are high relative to the rest of the west with no pressure to raise them. What if they move down to compensate for the strong dollar?
I think you are brave to try to predict a downturn in Australia. The wealth being created has barely begun to trickle down to the population. With massive mining capital investment plans in the coming years and a very high savings rate country wide and a culture of storing wealth in their homes, one can't afford to be wrong for long before one is out altogether.

This situation has been building for a while as the commodity price boom boosted Australia and her currency. Since then another factor has driven her currency even higher and it is explained well here in a good blog post.

"The official currency intervention has been backed up by the return of the carry trade. For new readers let me explain what it is.The carry trade in Japanese yen is where investors borrow at low Japanese interest-rates and invest the money in a country with higher interest-rates to make an interest-rate or “carry” profit.

Let me give an example of what I believe to be happening right now. Investors are borrowing Japanese Yen and investing them in Australia. If we start at the Japanese end you can borrow at virtually zero interest-rates. Indeed as I described above investors may be taking advantage of official bank of Japan policy as it offers cheap loans and floods the market with cash. At the other end a booming commodity based Australian economy has an interest-rate of 4.75%. In this era of low and zero interest-rates this is quite a margin. There may even be some money moving to Australia’s neighbour New Zealand but the margin here is lower as her official interest-rate is a lower 2.5%. Ironically her interest-rate cut due to her own earthquake may have given her some protection against a carry trade influenced by Japan’s later and larger earthquake!"
https://t.co/aA8FzGP

So Australia has money flooding in which tightens her monetary policy and stops her central bank from acting further against her house price boom. So the problems are mounting...

When I arrived in Australia I was shocked at how expensive things were, even once I was being paid in dollars (and I had a good job for the record). Groceries, going out, alcohol etc... are all a lot more expensive in Australia, rent was round about the same. Petrol was much cheaper but then to tax your car was far more expensive, so that ended up out weighing the benefit. It's suprising how both Brits and Aussies here still live under the impression that the UK is so much more expensive than Australia when it couldn't be further from the truth. Although it does sound like people are starting to cotton on to the reality.

Considering that as of this month, Chinas green energy output eclipses that of the US & EU combined, I wonder how long it'll be before China says "we don't need your coal anymore"

17. At 14:50pm 27th Apr 2011, pandatank wrote:
Considering that as of this month, Chinas green energy output eclipses that of the US & EU combined, I wonder how long it'll be before China says "we don't need your coal anymore"
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Including iron ore and other minerals,i think i can answer your question. It will be at least 50 yrs.