Housing Affordability: Win the Argument | Eliza Owen | [email protected]

Reviewer: soheila Jafari Thanks everyone. I want to tell you how to win an argument
against your parents about housing affordability. Because one of the things
that really keeps me up at night, aside from the cancellation
of the show”Firefly”, is the fact that conversations about
housing affordability are dominated by people who are older than we are,
who are largely wealthier than we are, and who have a lot more knowledge
on this issue than we do. So, why don’t we start with what
the typical house is worth in Sydney. In real estate,‌
when we talk about typical values, we refer to what’s called “the median”. The median is when you line up
your least valuable properties to your most valuable properties
in your area of measurement. And you take the middle figure
as your central tendency measure. And the reason we do this is because properties in real estate
can be really unique. Your highest value property could
represent a celebrity mansion. Your lowest value property could represent
an empty car space that someone accidentally left
a creepy dolls’ house on. These outliers can throw off our average. So that’s why the median is a really good
indicator of central tendency. In April this year, the median house in the greater Sydney metro area
was $945,500. To put that in further perspective,
if you guys work a graduate job or part-time job for $20 an hour,
you would have to work over 47,000 hours just to earn
that much money. That amount of money is enough to buy
my weekly groceries for the next 60 years. It would be longer
if I went on a diet though. (Laughter) From January 2014 to January 2015, the median house in Sydney grew by 20%. In one year, the median house grew
by 1/5 of what it was worth in the beginning of the year. This is a graph of historical growth rates
of the median house in Sydney. And this is our 20 percent growth rate
on the end here. And this graph reaffirms what a lot
of older journalists and politicians and your parents might say
about the housing market. That Sydney has always gone up. That the largest housing boom was
actually in 1987 when houses went up 38%. But if you work hard and you save
and you sacrifice, there’s no reason you can’t
buy a house in Sydney, too. Only talking about percentages
is very misleading. It masks the fact that we are currently in the worst housing affordability
situation in over 3 decades. And the reason for this
is that when we talk about a percentage value increase, we’re talking about an increase
of what the house was worth at the beginning of the year. And in 1987 when some of your parents
were buying houses, the value of houses in Sydney
wasn’t that much. So the percentage
increase wasn’t that much. So let’s map this out: If we have a 38%
increase of houses in 1987, they were worth $121,000 at the beginning
of the year and grew to $167,000. These figures aren’t adjusted
for inflation so that $160,000 is now about $360,000. But what does that mean for our percentage
increase in 2014 when houses went up 20%? They grew from $760,000 to over $910,000 or a real dollar value increase
of $150,000 in one year. If we adjust this increase in 1987
for inflation, that’s $95,000. So in real dollar terms, the 2014 housing
boom was larger. The other way that we can think about
affordability is in terms of our income. In 1987 incomes was $21,000
or adjusted for inflation, $50,000. If we plug that into $167,000, remember, that’s the value of houses
at the end of ’87, then we see that the house value
was over eight times incomes at the time, if we move forward to 2014, we can see
that the real dollar value income measure hasn’t increased that much: It’s gone from $50,000
in real dollar values to $60,000 in 2014 and part of that is due to the increased
casualization of our workforce. Today about 30% of our workers
are in part-time and casual jobs as apposed to 15% in the 1980s. If we take our $910,000 figure
and divide that by average incomes today houses are worth over 15 times
the average annual income. And I think the really frustrating
thing about this is that while there were
some non-home owners who were saving and sacrificing and working hard
like their parents told them to, any parent who happened to own
a median house in Sydney from January 2014 to April this year has so far made over $180,000
in their house. Just for owning a house. Even if these non-home owner saves
half of their income, who do you think
has a better chance at auction? Make no mistake that people are taking
this equity out of their homes and using it to bid against you
at auction. So, in terms of what we’re actually
going to do about housing affordability, I’m not really sure.
This is me at the moment – (Laughter) It’s one of those things where you could
go out and you could lobby for higher housing supply, or you could look at tax reform
for investors or you could decide that living in Sydney isn’t all that important
and just move away. But no matter what you decide to do,
if you don’t try and understand the economic analysis and the numbers
that are going into these arguments you’re not going to have a voice
in this debate. We need to become aware about Economics
and we need to embrace it as a study. And it’s funny because I know people
in this room who can write plays and build things and make
vegan food taste good. But when we hear a term like
“negative gearing” or “capital gains tax” or “percentage value increase”,
we let it wash over us and we think, “Oh, that’s out of my depth
of understanding” but it’s not. All I did for you today was talk about
growth in terms of real dollar values, in terms of percentages and look how
it totally changed the story about where the largest housing boom
has been in the last 30 years. You can learn about Economics by taking it in high school
or at university; If you don’t want to do that, you can just
read The Financial Review or The Economist or you can google things
you don’t understand or you can ask me. You can find me on Twitter
and ask me a question although I would probably
just google it for you. (Laughter) At the very least if we embrace Economics,
we can explain to our parents why we still live on their couch, if you’re lucky enough
to have a parents’ couch to live on. But at most, we can use these tools in Economics and we can use it
to make real change. Thank you. (Applause)

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