You Can Buy Your First Home!

Stephen Koukoulas is one of Australia’s most respected economists. His background covers the spectrum of economic insight - from his role as Chief Economist of Citibank to Senior Economic Advisor to the Australian Prime Minister.

In his latest article Stephen argues against the widely held belief that first homebuyers are being priced out of the market, showing us (and Bridie at The Guardian) that with a little frugality and some more realistic expectations, your first home isn’t just a dream.

Given it seems I have stirred up The Guardians Bridie Jabour to write an article titled “giving up lattes won’t help me buy a house”, I thought it constructive to consider a few of her points.

Ms Jabour laments that a house in the street she lives sold for over $900,000 a few months ago. In disclosing this, Ms Jabour is telling readers she lives in an area where house prices are around 15 to 20% above the median for Sydney. For a first home buyer, that seems very ambitious.

It is difficult to imagine there being a first home buyer than would not want to have their first home well above average, but they are competing with people who have the benefit of age, savings, job promotions and the like to have the ability to buy above average property.

Picking a house 15 to 20% below the median would mean a price some $275,000 cheaper than one 15 to 20% above median. The financial issues associated with buying a $900,000 property versus one of $625,000 should be obvious.

Ms Jabour makes an error when she notes “Owning a home in a city like mine is as remote to me as getting a seat next to Lady Gaga on the first commercial space flight”. She should have said that owning a house in that ‘street or suburb’, rather than ‘city’ was the issue.

Ms Jobour then outlines some of her spending and savings patterns and she calculates that she could save $58,400 over five years if she gave up going out and taking holidays. This amount possibly overstates her savings, as she notes, given the substitution of meals at home, for example, which is correct. I would simply note that the pool of savings would attract some interest to offset that.

Ms Jabour then very rightly notes the downside to renting. The dreaded inspections, risk of being kicked out on the landlords whim and not having the piece of mind of where she will be living when retiring. All these issue have some validity, and she could have added not being able to have a pet (usually) or nailing in hooks for pictures or changing the garden and the like.

But ignored are the onerous costs for home owners (including landlords) of council rates, insurance, and depreciation which covers things like the hot water system blowing up, fixing a leaking roof, a new carpet, painting and kitchen every 20 years or so. The sum of these on an average house are around $7,500 to $10,000 a year.

This is where Ms Jabour notes “I could maybe afford a house in the outer suburbs of Sydney”.


Because Ms Jabour says “maybe”, I get the impression she hasn’t looked closely at the prices out there, many of which are around half the price of those in her street and probably without a leaking roof and crappy wardrobes.

I think, unintentionally, Ms Jabour has found the answer to her problems, but it is an answer she doesn’t like. Moving to the outer suburbs means for Ms Jabour, that she would “want to give up everything that makes my life fun for five years”. Been there, done that.

Again, in a revelation about the problems, not joys, of owning a house, Ms Jabour highlights the burden of stamp duty, pest tests, surveying costs and body corporate fees if it is a unit. It is indeed costly to buy a house which lessens its attractiveness.

It is here there is Ms Jabour makes an unsubstantiated claim that “housing affordability is not a Generation Y issue, it’s not even a Generation X issue. It’s an issue for every single one of us not born rich “. It is unclear why Ms Jabour associates the 68% of the population in Australia who own a house as being “born rich”. I would like to see any background to that claim, but I suspect it is an error and that many people who own a house are on very modest incomes and were not born rich.

Ms Jabour remains off the mark by blaming “people with ridiculous amounts of cash who see a sellers’ market and buy up investment properties” as a reason for her perception of housing. I assume she includes her landlord in this statement? While investors can and have driven house prices higher and there is an excellent case for the abolition of negative gearing, it is a little too cute to blame those who provide rental property for the non-home owners for their inability to buy a house. Indeed, it is clear that Ms Jabour is enjoying the returns of renting an above average property without being able to afford to buy it.

And then, the final few paragraphs, Ms Jabour hits a couple of nails on their heads.

Land release, negative gearing and capital gains tax on the family house – critical issues that have had an impact on house prices. Land release is the easy one, and this is something that must be addressed and all efforts to in-fill and provide decent infrastructure in new suburbs is to be encouraged. Negative gearing is another poor policy that should be abolished and soon.

All up, Ms Jabour raises a range of valid issues that reiterate the decent point that affordable housing is a critical issue on decency and equity grounds. That said, it is an issue that requires people to avoid turning up their nose if the affordable house is in a good location of less than average quality or in a less desirable area but of a better standard.

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You Can Buy Your First Home!

Stephen Koukoulas is one of Australia’s leading economic visionaries, past Chief Economist of Citibank and Senior Economic Advisor to the Prime Minister.

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