fish.01

I don't think people were ever able to buy the average house when starting out. Then it wouldn't be the average house.

I suspect the reason an entry level house costs more now is that we often have two people working so prices bound to be a higher multiple than in the 60's when only one worked. The other reason might be the tax concession on investment houses encouraging more investment in property. Both of these are guesses though not backed up with any research.

Steve2009

I think this is a major social issue that families are forced into this situation by the market. It will be interesting to see in the failed markets how this demographic develops. Where families have the luxury of having one partner raise the family full-time will they both choose career and disposable income.

Seneca21

All that shows is that one person could get a mortgage on a house then, but now it requires two people. House inflation above wage inflation. If this keeps up we'll have to send our kids up chimneys and use their wages to increase the amount of mortgage we can get.

fish.01

Bit chicken and egg isn't it. Obviously house prices are mostly to do with supply/demand. You can be sure as night follows day that if each family tomorrow was magically given double their income that house prices would follow.

Personally I think the rise in two people working drove house prices up which in turn forced more families to dual income to keep up with the joneses. A continuous cycle feeding off the other.

fish.01

I think history already answers this. They mostly chose the bigger house.

renth

I was reading an interesting article recently disproving the dual income driving up house prices theory, on Zerohedge or Money Morning. I'll have to dig it out.

As far as I'm concerned the thing that has driven house prices in Australia is three things, 1) Easy credit 2) Negative gearing 3) Government first home buyer bribes.

Arguments about supply/demand (of houses as opposed to easy credit), housing shortages and a constant stream of migrants are a combination of bullshit and/or minor factors in the bubble in house prices that has occurred.

Steve2009

I don't know if they had much of a choice. I think the availability of credit would be a big determining factor.

fish.01

I agree that easier credit and negative gearing has played its part. Not sure that FHOG has had as much influence as that has been around for decades and is a small fixed amount decreasing as a percentage of purchase price over the decades. The boost came late in the day.

But I also think that one of the main things the majority of people look at when taking out a mortgage is the income they have to service the loan - and the security of that income.

If peoples income increases through strong employment and dual incomes so does their ability to pay higher mortgages. If unemployment stays low peoples faith in that income stream is more secure. After watching family and friends make these decisions over decades anything that discounts these decisions as part of the equation does not ring true to me.

Seneca21

Totally agree with these three factors, particularly the first two - these are the culprits behind insanely high house prices. It has been proved beyond doubt that there is no housing shortage. Hundreds of thousands of homes remain empty all over the industrialised world, mainly because of repossessions, etc., ironically.

fish.01

Many people could have lived in a more modest house and just had one income. I would guess the majority of these have decided not to and instead have a higher standard of living. In the 60/70's on average people lived a lot more modestly in smaller houses.

Steve2009

In Ireland people assumed bumper overtime, ever increasing salaries and occasionally rent a room / rental income in their decisions. They never considered black swan events, even minor interest rate increases.

Seneca21

I doubt this. An average wage of 20k/25k is going to get a mortgage of 70k/90k. You're not buying a public urinal for that in most of the UK/Aus.

fish.01

What year are you talking about with that average wage?

If you look at the massive increase in the average floor space of houses I think it is clear that people voted with their money for two wages and bigger houses rather than keeping one at home and buying a more modest house, or both working with smaller mortgage.

Not everyone has this choice of course...some had to have two wages even to afford a modest house....but many could have and chose not too. Human nature I guess.

fish.01

I assume you don't mean that as blanket as it comes across. I'm sure some people don't take into account even minor interest rate rises but many do. Not all are stupid

Steve2009

Judging by the number of distressed mortgages I would say quite a lot. If a bank wouldn't lend them what they wanted they would go elsewhere. It was rare for people to consider black swan events. I would wonder how many in Australia would factor in such scenarios as an interest rate hike, loss of one income, falling rents or rising voids. In fact, the whinging about how hard it is to save a deposit would seem indicative.