How well has your salary kept up with house prices?

You’ve probably noticed that house prices in Australia consistently outstrip wage growth. But by how much? And what can you do to ensure you’re not forever chasing the great Australian dream?

Each generation faces its own unique set of challenges (and opportunities!).

And for the current crop, one big challenge can be breaking into the property market, especially when competing against older generations that have had at least a decade (or two or three) headstart on the property ladder.

That’s not to say it can’t be done; far from it. But it does require good planning, discipline, and motivation to stick to a plan.

Because historically speaking, and as you’ll see below, the longer you leave it, the harder it is to keep up.

How much have house prices grown compared to wages?

Over the past year, there was a 2.2% annual increase in the Australian wage price index (WPI) – just short of the decade average growth of 2.4% – according to the Australian Bureau of Statistics.

Meanwhile, Australian housing values have jumped by more than 20% over the past year.

That’s just one year – and a bonkers year at that.

Let’s look at the trend over the past two decades to give us a clearer picture.

Over the past 20 years, wages have increased 81.7%, while Australian home values have grown 193.1%, according to this CoreLogic cumulative growth graph.

And here’s a state-by-state breakdown. As you can see, Tasmania has the most significant disparity between wage growth (79.6%) and house price growth (294%), followed by ACT, Victoria, NSW and then Queensland.

What does this mean for your next property purchase?

In short? It’s becoming tougher to save for a house deposit.

In the year to October, a 20% deposit on the median Australian dwelling value has increased by $25,417 to a total of $137,268, according to CoreLogic.

“With wages increasing just 2.2% in the year to September, it is difficult for household savings to keep up with this kind of increase,” explains CoreLogic’s Head of Research, Eliza Owen.

“​​This tends to lead to less demand from first home buyers through periods of rapid property price increase.

“Another important implication of high house prices relative to subdued wage growth is lower purchasing power when it comes to mortgage serviceability over time.”

So what can you do about it?

Besides demanding a significant pay rise from your boss, rest assured you have several options.

Most states offer grants and stamp duty concessions/exemptions for first-home buyers to help give you a leg up.

There are also several federal government options, including the famous First Home Loan Deposit Scheme and New Home Guarantee initiatives, which enable first home buyers to make their home purchase 4 to 4.5 years sooner.

That’s right – 4 years sooner!

Then there’s the First Home Super Saver scheme, which allows you to save money for a first home inside your superannuation fund and helps you save faster due to the concessional tax treatment that super offers.

And for those of you looking to purchase an investment property, rest assured that there are ways to leverage the equity in your existing property to help you grow your portfolio. Two simple words – ‘capital growth’ are like gold to property investors.

The reason this type of growth is so valuable to investors is twofold. Firstly, it is money you have earned without lifting a finger – and that’s always appealing.

Secondly, capital growth protects your wealth against inflation. Think of it this way. If you’d stored $500,000 in a savings account instead of buying a rental property, your money would earn interest, but the value of your capital (in this case, $500,000) would remain unchanged. Thanks to inflation, the purchasing power of your cash savings will decline over time.

So, if you want to become less dependent on your annual wage for your wealth and retirement and more invested in property, get in touch today.

We’d love to sit down with you and help make a plan to suit your current situation.

Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal, nor to imply any recommendation or opinion about a financial product. It does not consider your unique situation and may not be relevant to circumstances. Before taking action, consider your circumstances and seek professional advice. Copyright laws and various other intellectual property laws protect this content. It should not be modified, reproduced or republished without prior written consent.

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Alford Point, Bangor, Barden Ridge, Bonnet Bay, Bundeena, Burraneer, Caringbah, Commo, Cronulla, Dolans Point, Engadine, Grays point, Greenhills Beach, Gymea, Heathcote, Illawong, Jannali, Kangaroo Point, Kareela, Kirrawee, Lilli Pilli, Maianbar, Oyster bay, Miranda, Sandy Point, Sutherland, Sylvania, Taren Point, Waterfall, Woolooware, Woronora, Yarrawarrah and Yowie Bay.

St George area

Allawah, Banksia, Bardwell Valley, Bexley, Beverly Park, Blakehurst, Brighton Le-Sands, Carlton, Connels Point, Hurstville, Kogarah, Kyeemagh, Kyle Bay, Lugarno, Monterey, Mortdale, Narwee, Oatley, Peakhurst, Penhurst, Ramsgate, Riverwood, Rockdale, Sandringham and Sans Souci.

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Annadale, Ashfield, Balmain, Birchgrove, Dobroyd Point, Dulwich Hill, Enmore, Haberfield, Leichhardt, Lewisham, Lilyfield, Marrickville, Petersham, Rozelle, Stanmore, St Peters, Summer Hill, Sydenham, Tempe, Camperdown, Croyden, Croyden Park, Hurlstone Park and Newtown.

Eastern suburbs

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Coastal

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Inner City

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South West

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