Does Australia really have an affordability crisis?

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November 27 2019
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According to some, Australia is becoming a country of haves and have-nots, with first home buyers struggling to get a foot on the property ladder.

In a conversation with nestegg, managing director and property analyst at Propertyology Simon Pressley discussed why Australia does not have a nationwide housing affordability crisis, with only Sydneysiders being affected by high entry-level costs.

Mr Pressley said that while much of the focus is on Sydney, Australia’s biggest city is out of reach. “Last time I checked, Sydney is not a country.”

“Even in Melbourne, which has a high median house price, there are large parts of Melbourne where you can get a good quality property at an entry-level price,” Mr Pressley continued.

The cost of buying in Australia varies greatly from city to city; however, Mr Pressley noted that 35 out of Australia’s 50 largest towns and cities have a median house price of $550,000 or less.

Advice for Sydney investors

While buyers in Sydney might believe the property market is out of reach, Mr Pressley advised consumers to think laterally as a way to enter the property market.

Mr Pressley said investors looking to buy in Sydney as their first property need to lower their expectations, comparing it to receiving a brand-new Mercedes as their first car.

“We all know people that throw the toys out of the cot because they can’t afford to buy a property in Sydney. But that million-dollar basic dwelling, what that property investor is doing is trying to get into the top 12 per cent,” Mr Pressley explained.

Alternative strategies to get onto the property market – such as rentvesting, buying in an area while living somewhere else – are ways for investors to enter the market.

“Rentvesting is a real thing; it’s something the previous generation never thought of,” Mr Pressley noted.

The rentvesting strategy can be used as a stepping stone to buying a Sydney home, Mr Pressley said.

Using the example of an investor who has saved $45,000, Mr Pressley explained how the investor can leverage a deposit that is not large enough in Sydney to move up the property ladder.

“Even if the property grows by 1 per cent in its first year, 1 per cent of $450,000 is more than 1 per cent on $45,000 in the bank.

“It could also be 5 per cent. That is $22,500, that is adding half of our money in just one year,” Mr Pressley explained.

By stepping sideways in the current market, Mr Pressley said rental yields in most areas are cash flow neutral, with investors being able to ride the property market.

“The system is paying for the property, even though the investor is only putting 10 per cent in,” Mr Pressley concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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