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We Are Measuring Housing Affordability All Wrong

And the problem is worse than we think.

19/06/2017 9:49 AM AEST | Updated 19/06/2017 9:50 AM AEST
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"In simple terms, it matters because the statistics are skewed and don't show how bad home affordability really is."

Some time ago, I can't pinpoint when it actually happened, politicians, analysts and journalists changed the way they reported on housing affordability statistics. Since then, it's hard to find any commentator who believes young Australians aren't facing a housing affordability crisis.

At its most basic measure, housing affordability can be determined by the median home price in a city, for example, Sydney, and income. The median house price (the middle house price from lowest to highest prices, when placed in order), provides a reasonable indicator as to where the price is. Given the simplistic nature of the median, it's hard to fudge or muddle with this figure, given that the data is freely available.

Income is the other measure that is used to assess home affordability. And it's the reporting on income that's become a real problem for most analysts, commentators and journalists.

Once-upon-a-time, a typical Australian family had one income. Gender issues aside, it was usually the father, with the mother staying home to raise the kids. Then one day, the good intentioned boffins who measure things for a living, decided that household income would be a better measure -- probably to reflect the changing nature of the workforce, no doubt.

Without more meaningful information, our governments are less likely to be held to account to implement more sophisticated solutions to the housing affordability crisis.

What those same statisticians haven't realised, though, is that what once might have been a two-income household, now might be a four or more-income household, as the kids have grown up, but can't afford to move out of home given housing affordability issues.

So when commentators like CoreData report the cost of buying a dwelling currently takes 7.2 times a typical household income, they're not actually telling an untruth, but they aren't talking about the purchasing power of an individual.

So what does this mean?

Without a doubt, household income is going to be higher than a single income. This means the 7.2 times measure is really over 12 times for a person living in Sydney.

It also matters because households have changed again. Many young Australians are living at home into adulthood or in share house situations because they can't afford to buy or rent by themselves. So this idea of household income actually counts these arrangements, while the people under the same roof don't necessarily share goals. Therefore, I don't believe that household income is the correct measure.

So why does this matter?

In simple terms, it matters because the statistics are skewed and don't show how bad home affordability really is. And it matters for several reasons:

  1. It's covering the problem up for young Australians, who are typically on lower single incomes.
  2. It's not reflective for young people in an Apprenticeship, studying at University or TAFE or starting their first job, while living at home or in a share house.
  3. It's gender biased for single females, who typically earn less than their male counterparts.
  4. It doesn't reflect the nature of many single parent households, who are working and raising kids.
  5. It's just plain wrong for many in our community who work part-time and are affected by the increasing 'casualisation' of the workforce.
  6. It's also wrong for many older Australians who are on fixed incomes.

All of the above segments of our community aren't represented by an average household income measure. All of these segments however, are the ones most affected by Australia's housing affordability crisis.

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So what should commentators do?

We need to use the international measure for home affordability offered by Demographia which uses a single income measure -- not household income measures. According to Demographia, anything above three times starts to become unaffordable.

It's also important to get some truth back into home affordability statistics. It might help those in Government see the real nature of the problem and force them to address our housing affordability crisis.

We should demand a wider set of housing affordability statistics

The Australian Bureau of Statistics reports every May and November on Average Weekly Earnings for each State and Territory in Australia by gender. We also have data on the types of homes being sold -- houses or apartments and the number of bedrooms they have.

I believe that in this 'age of information' it's not an unrealistic request for analysts to report on a more comprehensive set of housing affordability statistics. This will enable our governments at all levels and locations to gain a more insightful understanding of who and which locations are most affected.

Without more meaningful information, our governments are less likely to be held to account to implement more sophisticated solutions to the housing affordability crisis.

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