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Sydney House Price 12 x Salary

Median Sydney House price at March Quarter 2015 has reached 12 times annual Average Weekly Earnings. Thatís up 3 times earnings in just 2 years. Somethingís got to give! Thirty years ago Sydney house prices were fairly stable in real terms at 4.5 to 5 times earnings.

The last time there was anything close to this level of short term escalation was in the late 1980ís early 1990ís when Hong Kong was shifting from UK to Chinese control. There was a rush of foreign buying of Sydney houses to gain a foothold here as an escape route if things didnít go well after the Hong Kong handover. Over the 2 years from March 1988 to March 1990 the median Sydney House price went from 4.3 to 7.5 times earnings.

Hard on the heels of this was the 1990 recession (Ēwe had to haveĒ) and house prices actually fell modestly Ė yes they do fall sometimes! From March 1990 to June 1991 Sydney house prices fell 12%. It doesnít feel like a recession just yet but no one can really predict these events.

So if something has got to give to break the inequities caused by this spiral, what will it be? The federal government has telegraphed two measures which seem driven by the stratospheric level of house prices Ė better enforcement of limits on foreigners buying detached dwellings and a change in partial age pensionersí means test.

We donít know what the change to the age pensionersí means test will be yet. One area that looks set for attention is the differential asset limits for home owners and non-homeowners. Letís look at these limits at the point below which some age pension entitlement begins for a couple.

For Home owners the asset limit (excluding owner occupied residence) is $1,151,500 and for Non-homeowners it is $1,298,000, a difference of just $146,500. One interpretation of these limits is as follows:

A couple owns their own home and $1.15 million is just enough to buy a lifetime annuity, health insurance and in-home aged carer insurance. Letís assume this is right for the moment. A retired couple, who doesnít own a home, only needs $146,500 to take care of all future rent over the next 30 years in a city where median house prices are close to $1 million and average apartment rents are $500 per week. This doesnít look acceptable. Letís see what the budget comes up with.

And letís not forget homeless accommodation shortages and rebuilding the hope for young adults one day having capacity to buy land rights plus build a dwelling of some description. Maybe the invisible hand of the market doesnít solve all our problems!

Posted Sunday, 3 May 2015

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