New calls to 'rentvest' as Gladstone rated Australia's only 'affordable' market

author-avatar By on September 14, 2020
New calls to 'rentvest' as Gladstone rated Australia's only 'affordable' market

Image: Wikimedia Commons, via Snappy Goat

A report revealed Gladstone is Australia's only 'affordable' market, at 2.8 times the median income, and one expert is calling for home buyers to 'rentvest'.

Demographia's 16th annual housing affordability survey released in January analysed 309 housing markets across Australia, Canada, Hong Kong, Ireland, New Zealand, Singapore, the United Kingdom, and the United States, and found Gladstone in Queensland was Australia's only 'affordable' market.

Gladstone had a median home price just 2.8-times the median income - $261,000 versus $93,800.

Demographia analysed 23 Australian markets over 50,000 in population, with the average price to income ratio at 5.9 - anything over 5.1 is 'severely unaffordable'. 

Founder of Reventon Finance Billie Christofi said a way to combat unaffordability is for young home buyers to 'rentvest'.

"'Rentvesting” is about buying where you can afford and renting where you choose to live," she said.

"Life is short so, by 'rentvesting', you can still live the lifestyle you want while making contributions to your savings through an investment purchase elsewhere.

"Joining a property syndicate is another option. You can get into the property market much sooner this way than waiting to do it on your own."

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

More than half (14) of Australia's markets were rated as 'severely unaffordable' in Demographia's survey, with the nation's top five capital markets at an average ratio of 6.9.

Overall, Sydney was the third most unaffordable market in the world, at 11-times the median income, behind Hong Kong (20.8-times), and Vancouver (11.9-times).

Melbourne was fourth at 9.5.

Demographia analysed data from the third quarter of 2019 - since then, COVID-19 has stymied home price growth.

Ms Christofi said home ownership in the traditional sense was over.

"The harsh reality is that most young Australians simply don’t have enough capital to afford a house deposit on their own," she said.

"And now, with many placed on JobKeeper or JobSeeker subsidies which the banks look down upon, the way we look at investing needs to change.

"The Australian dream is no longer about owning one property, in an area you might not even like, and living in it for the rest of your life."

Why is Australian housing unaffordable?

Various monetary experts quoted in Demographia's survey placed Australia's housing unaffordability on urban planning restrictions.

Former New Zealand Reserve Bank Governor Donald Brash criticised Australia's state governments.

"Australia is perhaps the least densely populated major country in the world, but state governments there have contrived to drive land prices in major urban areas to very high levels, with the result that in that country housing in major state capitals has become severely unaffordable," he said in 2008.

Then-South Australian senator Bob Day echoed these statements.

"However, the real culprit … was the refusal of … governments … to provide an adequate and affordable supply of land for new housing stock to meet demand," he said in 2016.

"The 'scarcity' that drove up land prices is wholly contrived - it is a matter of political choice, not geographic reality.

"It is the product of restrictions imposed through planning regulation and zoning."

Demographia rates 'Severely Unaffordable' as median price to median income ratios of 5.1 and over; 'Seriously Unaffordable' is 4.1 to 5.0; 'Moderately Unaffordable' is 3.1 to 4.0; and 'Affordable' is 3.0 and under.

Australian house prices compared worldwide

In all 309 markets across eight countries that Demographia analysed, Gladstone was tied for 29th most affordable, at 2.8-times the median income.

It was tied with other locales such as St Louis, Missouri and Cincinnati, Ohio.

However, it's important to note that with Gladstone being a port town, many workers there are on fly-in, fly-out schedules and might not necessarily live in the area full-time.

Globally, the most affordable market was Fort McMurray in Alberta, Canada, at 1.8-times the median income.

With an overnight average minimum temperature of -22 Celsius in January, it's important to note, too, that salaries have been buoyed in Fort McMurray by the oil industry.

mcmurray

Would you live here? Fort McMurray, with home prices at 1.8 times the median income, is the 'cheapest' of 309 global markets analysed. Source: Wikimedia Commons.

More broadly, more than half of the markets in Australia analysed were in the 'severely unaffordable' category.

The Sunshine Coast region was the tenth-most unaffordable market in the world, at 8.4-times the median income.

This is on par with San Francisco, and is more expensive than Greater London (8.1-times).

Brisbane came in at 6.3-times the median income, while Perth came in at 6-times, on par with Plymouth and Devon, UK, and Reno, Nevada.

Demographia's survey did not take into account housing quality, land size and other variable factors.

Top ten unaffordable global housing markets

  1. Hong Kong - 20.8
  2. Vancouver - 11.9
  3. Sydney - 11.0
  4. Melbourne - 9.5
  5. Tauranga, Western Bay of Plenty, NZ - 9.3
  6. Los Angeles - 9.0
  7. Toronto - 8.6
  8. Auckland - 8.6
  9. San Jose, California - 8.5
  10. Sunshine Coast, Queensland - 8.4

Top ten affordable global housing markets

  1. Fort McMurray, Canada - 1.8
  2. Peoria, Illinois - 2.1
  3. Davenport, Iowa/Illinois - 2.2
  4. Rockford, Illinois - 2.2
  5. Utica-Rome, New York - 2.3
  6. Akron, Ohio - 2.4
  7. Fredericton, Canada - 2.4
  8. McAllen, Texas - 2.4
  9. Saint John, Canada - 2.4
  10. Syracuse, New York - 2.4 

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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