Mortgages now soak up 42% of average income in Sydney, 37% in Melbourne and 23% in Brisbane, with other capitals around 20%

After more than 20 years as a property analyst consulting to developers, Michael Matusik wonders why there aren’t any Occupy Wall Street-style protests from Australians looking to buy their first homes.

For those on the outside looking in, there’s a special level of pain in Sydney and Melbourne right now. But the problem of “eye-watering” prices stacked up against average incomes extends well beyond the biggest cities, Brisbane-based Matusik says.

“I’m surprised there isn’t a lot more, not rioting in the streets, but close to it,” he says.

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“Occupy Wall Street-types saying: ‘We’re sitting on this real estate, we’re getting the Channel Nine chopper here and we’re sick of this, what are you bastards doing?’”

Figures prepared for Guardian Australia by BIS Oxford Economics show the Sydney housing market is as unaffordable as any time over the past 26 years. As of December 2016, 42% of the average disposable income of a New South Wales household was swallowed up by monthly mortgage payments on a median-priced house in the capital – after a 25% deposit.

It was the same in 2008, still the highwater mark of housing unaffordability in all but one Australian capital.

Melbourne at 37.1% in December was forbidding but it was worse there in 2008 (38.1%) and 2010 (37.4%).

But as the Reserve Bank board noted this month, prices have continued to rise this year in both Sydney and Melbourne.

It’s a sad realisation: to get an affordable family home, you’re having to move an hour south of a major CBD Holly Carson

David, a Sydney public servant who is 40 and single, finds himself priced out of buying in the inner-city neighbourhoods he’s lived in his whole life.



That’s despite him earning roughly double the average Australian wage at $150,000 a year (David hasn’t forgotten the “disgraceful” comment by the former federal treasurer Joe Hockey that aspiring homeowners should “get a good job that pays good money”). So he rents a bedsit in Miller’s Point for $500 a week.

“This idea of the Australian dream is gone-ski, unless you’ve got $1.2m to $1.6m in [central] Sydney, or your parents have got money and they can back you,” he says.

Beyond Sydney and Melbourne

In Brisbane, schoolteacher Sara Beeston counts herself lucky. She bought her first home last year: a two-bedroom unit in inner-city Fortitude Valley, in a building with a pool and a gym.

There is “no way” she could afford equivalent digs in Melbourne, where her sister, a lawyer, lasted only a year in her one-bedroom Carlton apartment before putting it up on Airbnb and renting further out.

“She loves to be around people, and being in a unit by herself and the size it was, almost killed her,” Beeston says.

Facebook Twitter Pinterest Holly Carson and Josh Abel bought an a two-bedroom inner suburban apartment in Brisbane and now pay less on their mortgage than they did in rent. Photograph: Holly Carson

But even in Brisbane, “the long and the short of it” is that Beeston – now in her 30s – probably wouldn’t own a home without her father’s help gathering a deposit.

She says she was mindful of a coming apartment glut in Brisbane helping her as a buyer, and she’ll be happy just getting her money back as a seller.

Holly Carson also thinks herself lucky. The hair salon owner, 33, also bought her first home in Brisbane last year with her partner, Josh Abel, 30, who runs his own industrial design business.

Their two-bedroom unit in Annerley, 6km from the central business district, carries a mortgage they can service on one income, to allow for career transitions, overseas holidays “and smashed avo on toast”.

They saved hard for a 30% deposit over two years and now pay $230 a week on their mortgage, versus $385 a week when they rented.

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Some couples they know chose “trendier” areas with mortgages that swallow up half their income, leaving them in “scary territory” if one partner gets pregnant or loses a job.

Carson wonders about the “sad trade-off” many people their age are forced to make when they have children.

“It’s a sad realisation: to get an affordable family home, you’re having to move an hour south of a major CBD and your limits are public transport and you’re kind of sacrificing your lifestyle.”

The BIS Oxford figures show Brisbane was Australia’s third least affordable capital for housing, at 23.4% of disposable income.

That’s a far cry from Sydney or Melbourne or its own high in 2008 (34.4%). In fact Brisbane, Adelaide (21.8%), Hobart (20.5%) and Perth (20.2%) were all more affordable than they were in 1991.

Darwin at 14.3% is the most affordable it’s been in 13 years.

Perth, which has seen a steep fall since 2012 after becoming less affordable than Melbourne in 2006 and 2007 (when it peaked at 36.4% during the mining boom), is now held up as the cautionary tale beside the big-city property bubbles.

Not that this has made Perth or any other capital affordable for average wage earners.

If I was the Reserve Bank I’d be worried … they don’t want the bubble to pop Richard Robinson

By another simpler but widely recognised measure – the median house price divided by median household income – every Australian capital and most regional centres rate as “seriously or severely unaffordable”.

Matusik has argued that, while it’s a different story when apartments are considered, capital city house prices must drop 37% on average to be truly “affordable”, given local wages, with Sydney (47%), Adelaide (29%) and Darwin (28%) required to fall the furthest.

“I have a daughter who lives in Hobart, and let me tell you, it’s tough in Hobart,” Matusik says.

“We might think Hobart’s cheap but it’s not for people living where unemployment’s 12 to 15% and some people haven’t had a wage increase since God knows when.”

Facebook Twitter Pinterest Real estate analysts say Australia has the world’s most ‘generous tax breaks for residential property’. Photograph: zstockphotos/Getty Images/iStockphoto

‘Not investors but speculators’

Richard Robinson, senior economist for BIS Oxford, says the affordability problem, most acute in Sydney and Melbourne, is mainly a story of “wealthy people investing in property and driving up price and demand”.

These are “not investors but speculators”, says Steve Keen, an economist and academic who has long pointed to rising mortgage credit from banks as the fundamental driver of high property prices.

Robinson, Keen, Matusik and many others believe the federal government should banish the key incentives for making money simply by betting on the rising price of an existing house.

Phasing out negative gearing to stop investors writing off rental losses on multiple properties against their income, and tax discounts on capital gains, Robinson says, are key to “deflating the bubble slowly before it goes pop”.

The Turnbull government has resisted calls for such moves, leaving in place what Robinson calls the world’s most “generous tax breaks for residential property”.

“To me, that’s where all our savings have gone.”

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Sadly, that’s the case for Robyn Walker. She had a disastrous run in property investment after being wooed by “predatory” bank lenders and encouraged by financial planners and accountants.

In 2006 Walker was just $150,000 away from paying off the mortgage on her acreage home south of Brisbane, which was valued at $1m two years later.

Now, after a tangled web of loans from banks who were willing to lend $2m for her to branch out with investment properties – despite her being in a commission-only job that she then lost – Walker, 64 and nearing retirement, is effectively $500,000 in debt.

“I’m holding back the tears. I had a really bad breakdown and was suicidal and under a lot of doctor’s watches for about three years. I’ve been trying to survive enough to gain something back.”

Walker has won concessions from one bank and is fighting for more from another.

The RBA board has noted that, despite measures to reinforce more prudent investor lending, it was growth in loans to investors and not occupiers that rose in the last six months, and mostly in Sydney and Melbourne where house values have soared.

Growth in overall housing credit “continued to outpace growth in household incomes, suggesting that the risks associated with the housing market and household balance sheets had been rising”, it said.

Robinson says for the government, the alternative to tackling high prices driven by investors is letting the problem “fester and eventually, like all Ponzi schemes, someone’s going to go, ‘This is not sustainable,’ and everyone’s going to start bailing out”.

Ultimately you find rather than 25-year-olds being your median purchasers, it becomes 35-year-olds, 40-year-olds Steve Keen

The result could be Spain-like overnight property value crashes of 40% to 50%, Robinson says.

“If I was the Reserve Bank I’d be worried about it because the vast majority of the population is exposed to property and they don’t want the bubble to pop.”

Keen says when high earners like David stop stepping on the home buyers “escalator”, it’s a sign of a system coming “unstuck”.

“It relies on people getting into the market and then selling out at the top and the only way that works is if people continue hopping on the escalator.

“The escalator itself is moving up so that first step goes from being a tiny step to where you need grappling hooks to get on to it.

“Ultimately you find rather than 25-year-olds being your median purchasers, it becomes 35-year-olds, 40-year-olds … when it approaches 65-year-olds, well, that’s it.

“The music stops when banks stop lending and consumers stop seeking at the same time.”