We’ve got the beaches, the sun and a relatively low crime rate. Aussies are also constantly told they’re lucky to have a booming economy, but the catch is that it’s pushing the cost of living, particular housing, skyward. Guest writer Nigel Bowen explains why.
If asked to guess the five most expensive cities to live in, most people would probably nominate the likes of Tokyo, Paris, London, Zurich and New York. They’d be right about Tokyo (it’s the world’s most expensive city), but wrong about the rest.
According to the Economist Intelligence Unit’s worldwide cost of living index 2013, the third most expensive city to live in (after Tokyo and Osaka) is Sydney. And the fifth most expensive city is Melbourne. Considering that neither city was even cracking the top 50 a decade ago, that’s quite a jump.
Prices of many goods and services in Australia have tripled over the last 10 years, rising far above the rate of inflation. Back in 2003, the average price of a loaf of bread was $1.97, whereas now it sits at a whopping $5.03. And while you might be able to cut bread out of your diet, you still need somewhere to live.
The Demographia survey recently discovered house prices in Australia are among the most unaffordable in the developed world. The survey found that Australians needed on average 5.6 times their average annual household income to buy a house, or 6.5 times if they wanted to live in a capital city. Translated into plain English that means a couple collectively earning $100,000 a year need $560,000 to buy an average house, or $650,000 for one in the big smoke.
Why is it happening and what does it mean?
There are a number of reasons why it’s now more expensive to live in Melbourne than Manhattan, some of which are structural and others that are likely to be more short-lived. A long-term trend is the shift in the economic centre of gravity from the West to Asia, which means cities in our region are getting more expensive. The fact that Australia’s property market didn’t collapse during the GFC and that we have a strong currency has also pushed up prices.
A high cost of living is not, in itself, a bad thing, especially if it goes hand in hand with high wages. In most cases, prices haven’t grown any faster than wages in Australia in recent times. But there are certainly areas, such as the property market, where prices have increased out of all proportion to incomes.
One thing that hasn’t changed in Australia over the last decade is the need to save up if you want to buy something expensive (like a house). RaboDirect has just introduced their Notice Saver account, a new way to save that helps you to avoid impulse purchases.