Sign of the Times

No matter which country you live in, it seems to be apparently harder now than compared with any other generation, to be a first home buyer. When my parents were buying their first home, the average house price was four times their annual wage. In Australia now, it's eleven times their annual wage. You physically need to have two full time incomes to pay off the $400,000-$500,000 you borrow, let alone saving close to $140,000 to cover the 20% deposit and stamp duties you need to ensure you don't have to pay mortgage insurance and other ludicrous fees the banks and government throw at you. In Australia, the hardest thing at all at the moment is that, even though we have the lowest interest rates on record, the housing prices are sky-rocketing, for one simple reason... there is a culture of investors out there who are 'teaming it up.'

And that culture is the Chinese. They are collectively getting together, as family members - father, mother, son, uncle, aunt, cousins, etc, and buying one property with four or five incomes contributing to the mortgage, they are paying off the mortgage within a couple of years and then going to buy the next property... they continue doing it, living in small 2 bedroom apartments, rotating beds to sleep in as some family members do night shifts and some do day shifts, until everyone has a property to live in to call their own. Then they continue building their small fortune with investment properties. With their four-five incomes + rental income, they are paying off their investments even quicker... instead of 2-3 years, it maybe 12 months, and it snow balls until they are simply just paying cash for each and every investment and bidding every other potential buyer out of the auction race.

So why aren't the western world learning from the Chinese ability to create wealth? I'm not saying that we should live in cramped quarters with our parents in the same bedroom as us when we are twenty, but can't we create a home buying model that ensures that our families stick together and build wealth as a team? Isn't that how the rich get richer? Creating a family dynasty that was portrayed in TV shows like 'Dynasty' and 'Dallas,' or even the real life dynasties like the Hiltons, the Kennedys and the English Royal family?

Ok, some of you will say that it's long term family inheritance that has helped those families be who they are... but they started somewhere... they started with a family bond, a will to leave a legacy, a will to help each other as families should and can.

I think it was somewhere after World War II when families were left fatherless, returned soldiers received war service homes at heavily reduced rates, but had to fend for themselves as they had lost parents, brothers and sisters in the war that this ideal of 'buying the Australian dream' became autonomous. The government and banks assessed you on you being a 'returned soldier,' 'a new Australian' or 'a war widow' and that you had no support network of family to help you, therefore your ability to pay a mortgage was assessed on the one income. So as pride took over, the pride that you could actually pay your home off on the one income in a reasonable amount of time, so did the attitude that 'I did it on my own, so my kids can do it on their own.'

But what our parent's generation don't get is, yes they may have been paying up to 20% on their home loans in the 80s, they were paying 20% on a $50,000 loan... so essentially $10,000 a year in interest. Where as the first home buyers are paying 5% on a $400,000 loan... which equals $20,000 a year in interest. On a $50,000 loan, you may have only paid off $2000 in a year in capital, 4% of your loan. On a $400,000 loan, you need to pay an extra $16,000 a year to pay 4% off your capital. So the difference of achieving the same result in different times is $12,000 a year in the 1980s to $36,000 in the 2010s. But is a first home buyer making 3 times the income as their parents were when they first stepped into the real estate world?

The Australian Tax Office statistics say that in 1989, when the interest rates were at their all time high, the average annual Australian wage was $26,073, in 2009 the average annual wage was $62,171 (and we had 8-9% interest rates). Can you imagine paying $36,000 a year on your mortgage on $62,171? More than half of your income is on your mortgage, and you haven't even taken your tax out of your income yet...

Our family attitudes have to change for the next generation... we can no longer allow our kids to contemplate doing it on their own. We have to act not only like a family, but a team... a team who helps each other financially, emotionally and physically. It's not that one team player out-performs another team player, it's working on each other's strengths. It's not giving them everything on a silver platter, it's showing them how to strive for goals, meeting their goals and relishing in the success of their goals, but giving them the strength that they are not doing it alone, and that if they falter, they are letting the team down, not just themselves.

We need to have a collective attitude in our families. It's OK to live apart, it's OK to have different goals, but if we don't want our housing prices, the basic need for shelter, to be taken away from us, we need to think smarter and more collectively.