Property prices have grown twice as much as wages over the past 20 years

Property prices have grown twice as much as wages over the past 20 years
(Brendon Thorne, Getty Images)
  • New analysis by CoreLogic highlights the extent to which the property market has accelerated ahead of wages in the past 20 years.
  • While wages increased 81.7% in the past 20 years, Australian home values have shot up by just over 193%.
  • The analysis comes amid a wider conversation among regulators, banks and state and federal governments around how to address the growing lack of affordability of housing. 
  • Visit Business Insider Australia’s homepage for more stories.

Home value growth has vastly outstripped the total change in wages and salaries, CoreLogic analysis of the property market relative to wage growth has revealed. 

The new analysis seeks to show the extent to which the property market has accelerated ahead of wages over the past 20 years. 

While wages increased 81.7% in the past 20 years, Australian home values have shot up by just over 193%. 

This has been further exacerbated by the recent upswing in national housing values, which have seen Australian dwelling values rise 22% over the past year. 

The new analysis comes amid a wider conversation among regulators, banks and state and federal governments around how to address the growing unaffordability of housing. 

Speaking before a parliamentary committee on November 15, RBA assistant governor Luci Ellis admitted that the most realistic way for many Australians to enter the housing market was now through their parents.

The Standing Committee on Tax and Revenue for an inquiry into housing affordability and supply, launched in September, is currently examining the tax, regulation and supply issues driving skyrocketing price growth.

While the ABS posted a 2.2% annual increase in the Australian wage price index (WPI) in November, reflecting a return to pre-pandemic levels, Australia’s wages haven’t seen meaningful growth in the last decade.

Wages growth has almost halved over the past century in Australia. While the wage price index grew 2.3% in 2018, up from a record low of 1.9% in 2017, this figure remains less than two-thirds of the average wage growth of 3.5% seen during the decade-and-a-half leading to 2013. 

The difference in growth rates has been most extreme in Tasmania over the past two decades, the report said. Property values across Tasmania have risen almost 300% in the past 20 years compared with an 84% rise in the state’s wage price index.

In stark contrast, the space between wages and house price growth has been smallest in the Northern Territory, which has tended to have a well-compensated, transitory workforce across the resources sector. 

In the past 20 years this has resulted in strong surges in wages, amid periods of high demand in the sector, without a significant increase in demand for permanent housing. 

Overall CoreLogic’s analysis outlines the historical trends that have resulted in the current impact of the disparity between wages and property price growth: the ever-growing length of time required to save for a housing deposit for a mortgage and lower purchasing power when it comes to mortgage serviceability over time.

Property prices have risen more than 15% in every capital city over the past twelve months, according to the RBA, with average home prices now 5.5 times the average household disposable income.

As of 2021, it now takes around 11 and 15 years in Melbourne and Sydney respectively to save for a house

RBA governor Philip Lowe said in a speech on Tuesday that annual wages growth could be a “guidepost” for the sustainable inflation needed to trigger a cash rate hike. 

Lowe said the RBA was looking toward an annual wage price increase of 3.0% or more to maintain inflation between its target range of 2 and 3%. A higher cash rate would likely put downward pressure on housing prices, but the RBA maintained this was unlikely for 2022. 

If housing prices were to fall off the back of rising interest rates and in an environment of rising wages, new opportunities may occur for first home buyers to accumulate a higher deposit, CoreLogic said. 

‘Recent home buyers may take a hit to their equity levels, but would hopefully also have greater capacity to service their mortgage through wage increases,” the report said.