There’s an old saying that “it is better to keep your mouth shut and be thought a fool, than to open it and remove all doubt”. That doesn’t seem to bother our local Federal MP Barnaby Joyce, whose advice to people who can’t afford a house in Sydney is to head to the sticks where property is cheaper.
I know that it’s more than thirty years since Mr Joyce commenced his Bachelor of Financial Administration degree at UNE. But part of that course was Introductory Microeconomics – literally, Economics 101 – where the first thing the lecturers explain to the newly -arrived freshers is the concept of supply and demand.
(Disclaimer: I did that course as an external, mature-age student in 1992. Result? A Distinction; thanks for asking.)
It isn’t rocket science. In a country town there are fewer jobs, they pay less, and therefore the demand for real estate, reflected in the prices, is lower. Mr Joyce appears to grasp this in the article linked to earlier, but he seems to have missed the point that the real estate bubble has inflated everywhere. It’s worse in the cities than the country, but only relatively.
This quotation from the article called out for some empirical investigation:
“Little old bush accountant, a very simple rule of thumb for me was that you add up all the income in your household and you multiply it by three and that’s about the value of the house you should be looking at,” he said.
Restricting myself to the devil I know… the first stop was to find the median household income for Armidale, which this page tells us was $986 per week at the Census-before-last in 2011. Next came a side trip to the Australian Bureau of Statistics for the most recent inflation data, which was 10.2% between the September 2011 and December 2016 quarters. (Yes, this is guessometrics. I have to work with what I’ve got.)
Inflate and annualise, and we get a median annual household income of (approximately) $56500. Multiply this figure by three as per the “bush accountant’s rule of thumb”, and “the value of the house you should be looking at” is $169,500.
Say, $170,000. That should get you a house in Armidale somewhere around the median value, right?
Wrong. The last stop was realestate.com.au’s current listing of houses for sale in Armidale. As of 25/1/2017 when this article was written there were 249 properties listed, and the median price was $395,000. That’s more than double what the “bush accountant’s rule of thumb” would advise. And, worse still, there were exactly three properties under $200,000. (That’s the “bottom percentile”, in sadistics-speak.)
But interest rates are lower than they used to be, right? True, but the LocalStats page linked to earlier states that the median monthly mortgage repayment for Armidale in 2011 was $1,470. Again, inflate this by 10.2% and the 2016 figure is $1,620 per month. This is 34.4% of median household income, and it’s a “rule of thumb” that repayments over 30% of income amount to mortgage stress.
Mr Joyce’s “rule of thumb” is obviously out of date. It’s a fair point that he hasn’t been a “bush accountant” since 2004. But if you’re going to dish out lifestyle advice of life-changing magnitude, it might be a good idea to keep yourself abreast of current information.
Eyesore In Armidale 