Col,

Surely, the test of whether something is becoming less affordable is whether a person on the median wage would be required to work more hours to pay for it. This is a bit out of date, but Figure 1 shows what has happened in Sydney with house prices in relation to the average wage since 1991.

http://www.fbe.unsw.edu.au/cityfutures/publications/presentations/ncoss.pdf

Rents have since gone up, increasing by 30% over the last 5 years in the Sydney area, according to a recent report by Adele Horin in the Sydney Morning Herald.

This fact sheet covers the Australia wide situation.

http://www.findem.com.au/factsheets/housingfactsheet.pdf

These increases would include old workingmen's cottages, not just MacMansions.

Divergence... whilst I agree with the view of median incomes, I would suggest your median income should be based on a couple, not a single person.

The other point is... if median priced houses are not being purchased by "median income earning couples", who is buying them?

I know in some suburbs there has, supposedly, been alot of foreign investment which may well push up prices beyond that affordible by the median income couple. This foreign ownership may become a problem if it remains a long term trend, otherwise there will be a deflationary adjustment when the foreign investor finds somewhere else for his funds. If foreign investors continue to flock to our shores then I would observe, "affordability" is made less viable for external events which a government should address (like limiting property ownership to australians with permanent residency visas / citizenship... which touches close to the issues on another thread justed started re Mike Pope "Selling off the farm?"

cheers

<I would suggest your median income should be based on a couple, not a single person.>

In other words you are blaming working women for the decline in housing affordability. What reasoning underpins this claim, Col? Has the fact that both partners are often earning an income affect the price of other commodities? Has the price of a television gone up because there is more money available to buy one? In fact, the price of many consumer items has declined. Wouldn't this be in conflict with your reasoning, Col.

My understanding of simple supply and demand dynamics is like this: If you increase demand, supply reduces. This results in higher prices, resulting in an increase in profit. This then leads to an increase in supply, which tends to reduce prices. The variables are cost, supply, and demand. How could increasing the money available for a commodity change the supply/demand/price equilibrium?

Fester "In other words you are blaming working women for the decline in housing affordability."

is that is the twist you want to put on it.... (twist being the operative word)

No Fester, I blame no one for anything.

"Affordability" is not a blight on humanity, it is a measure, nothing more and nothing less.

It is also a fact that say 50 years ago, "family income" relied almost exclusively on a husband's earnings and a home-keeping mother.

These days we have far more "working mothers" with careers which exist beyond child rearing and with goals which outstrip the aspirations of their mothers.... that is their choice and I neither "blame" them for exercising such a choice nor criticise them for making their life choices to suit their personal aspirations.

Indeed, I commend them for aspiring to do all they can to secure their own future, regardless of how negatively you seem to interpret my observations of their actions.

If you want to consider another factor Fester, "affordability" may also be a function of divorce, where both parents are accountable for their children and one has to pay maintenance.

I did that... paid child support to my ex... and I managed to afford to buy a house at the same time but I bought in 1995 following the price collapse, a product of the idiot, Keating, "The recession we had to have" bastardry.

At that time house prices had fallen as interest rates went through the roof.. so I bought on the cusp of interest rates starting to fall again ..... the exact best time for anyone to buy.

The same rules apply today.

Fester, for the benefit of your education

Your Wrote "If you increase demand, supply reduces. This results in higher prices, resulting in an increase in profit."

If that is what you think, than you have no grasp of economics and should shut up before you embarrass yourself further.

The point with "supply and demand", be it for houses or pork bellys is supply and demand are independent of one another.

the point at which they intersect, where a transaction takes place, is where

the buyers offered price is sufficient for the seller or

the sellers demanded price meets the budget of the buyer.

Whatever "profit" occurs has nothing to do with it.

and any seller who demands a price higher than the market will bear will find he does not sell much.

<Whatever "profit" occurs has nothing to do with it.>

Not so, Col. Consider the price of a dozen eggs: If the profit margin is very small, there is very little incentive to produce more product, and vice versa. And if the selling price is below the price of production for an appreciable period, supply will likely cease. This might be why any intended business venture will include an estimate of the profitability of the enterprise in its due diligence.

On the question of house prices, if the cost of building a new home were substantially below the median house price for that location, do you not think that there might be more houses built as a consequence of the profit to be made? Isn't that what capitalism is all about, Col? Or maybe you think the builders would ditch their tools and instead start an unprofitable egg venture?

Eggs to you, Col.