Is the Australian Dream still alive?

Posted on February 28, 2012

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The Australian Dream of home ownership is an ideal that many Australians believe in. Owning your own home brings an immense level of stability, security and comfort. It is the hub from which you base all of your activities. You invite your family and friends into it. You sleep in it. You grow up in it. It is safe to say then that your home has an intangible value attached to it.

With that cleared up, we need to ascertain whether the average Australian can buy their own home and live the Australian Dream. To do this, we need to perform a little bit of research.

Firstly, we need to figure out the cost of a home that is nearby amenities and not too far from the city. Depending on the size of the family, two bedrooms may be enough, while other times you may need four bedrooms (and possibly bunk beds!). After averaging out the size of the house, number of bedrooms and excluding apartments and units for suburbs less than 15 km’s to the city, we estimate prices at around $780,000. With current mortgage rates, that puts repayments on principle and interest at around $5,600 a month, or $1,400 a week.

Putting $1,400 a week on a mortgage is all relative though. If you earn $40,000 a year that would be impossible. If you have a joint income of $200,000 it wouldn’t be an issue whatsoever. So how do we put this into context? Let’s move onto the income component. As we are trying to find out if the Australian Dream is alive, we need to see if the average Australian can afford it.

For figuring out how much the average Australian earns, I’m going to cite this amazing reference and blog post by Matt Cowgill which explains how he calculated what the average Australian earns. Using a report conducted by the ABS in August 2010, $44,146 is the figure provided. Yes, August 2010 was some time ago but wages have not risen dramatically enough to nudge this figure over $50k.

‘But that’s okay!’ I hear you saying. ‘If I double that, it will be what a couple would earn! And that makes it $88,292!’

Yes, you’re right. But that would mean your combined income would equate to $1,697 a week. Barely enough to cover the $1,400 repayment! And after putting around 82% of your wages on the mortgage, it would leave the two of you with just over $15,500 to spend throughout the year on food and bills and insurance and rego and a million other things. And I haven’t even added children into this yet (which alone cost $18,000 a year… each).

So owning a house within 15 km’s of the city seems out of reach for the typical Australian. What does that leave? Well, it isn’t impossible for small families to live in a unit/townhouse/apartment closer to the city. They definitely do not cost as much as a house on a quarter acre block.

But a three/four bedroom house on a quarter acre block are all essential ingredients of the Australian Dream. Having grass to mow and wash the car on is all part of the idea of typical home ownership. Having a backyard with enough room for a barbeque also essential. Which is why the $780,000 was only calculated on houses, not units or apartments.

With that aside, the only way around this is to move further away from the city. Suburbs like Williams Landing, Keilor, Blackburn, Chadstone and Reservoir are all, what I like to call ‘mid tier suburbs’, not inner city but definitely not considered on the fringe of metropolitan Melbourne. These suburbs offer some good value. In these suburbs, prescribing the previous set of valuations, the Australian dream glows dimly. When we begin moving further away from the CBD, that is where the Australian Dream glows brightly.

Is it all a matter of ‘the further out the cheaper’ then? It may seem that way, but not technically. House prices in Dandenong (35km’s from CBD) can easily be compared with those in Sunshine (15km’s away). The same can be said with suburbs such as Werribee, Melton or Sunbury. However these are considered more as satellite cities, in that they are connected to a large city, but not entirely dependent on it.

Buying property further than the mid fringe however offers a wide range of options to live out the Australian Dream. If you aren’t fussed with living 30km’s+ from the CBD then you can live the Australian Dream. You really can. How have I come to this conclusion? Well…

Repayments on a house in Werribee that has a double garage, three bedrooms, a big backyard and a POOL are $630 odd a week. If Mum and Dad work, then there would be enough money for repayments, two children (note, the typical aussie nuclear family) all with the standard of living Australians expect. The same can be said for houses in Springvale, Ringwood, Gladstone Park, Thomastown, Taylors Lakes, Caroline Springs and the list goes on.

So the verdict? You can buy a house and pay for it on an average wage. You can live the Australian Dream. It just can’t be in the same area your parents may have purchased in. There are many reasons why this has happened and more importantly, how it has happened and how to stop prices from running away from us, but they won’t be tackled in this blog post.

Till next time!

 

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