Alan Kohler exposes Australia's 'worst financial mistake' – and boomers are benefiting

ABC financial expert Alan Kohler has described the housing affordability crisis as Australia's biggest ever financial mistake.

The situation is now so bad that an average-priced house is out of reach for a single average-income earner, even in the traditionally more affordable capitals.

Adelaide is now Australia's second least affordable capital city when the state's average full-time salary is compared to the city's average property price.

In January, the average price for houses and units in Adelaide was $721,376, which is 7.9 times higher than the average full-time salary of $91,026 in South Australia.

This was well above the Australian government debt-to-income ratio of 7.5 – itself well above the banking regulator's threshold of '6' for mortgage stress.

“There are a few things that might surprise you: Adelaide became the second least affordable city in Australia last year,” Kohler explains.

'Adelaide has just taken second place from Hobart.

“What's happening: Simply put, incomes in Adelaide, Hobart and Brisbane are not keeping pace with house prices, which are being driven up by rapidly growing populations and first-home buyers.”

Mr Kohler, a baby boomer, noted that when he and his wife bought their first home in Melbourne for $40,000 in 1980, he earned $11,500 as a journalist. This meant his house cost just 3.5 times his income before the mortgage payment.

“When my wife and I bought our first home in 1980, the average home price was 3.5 times the average income,” he said. 'Now it is 7.5 times and rising.

“That didn't have to happen: it's Australia's biggest economic mistake.”

The Reserve Bank raised interest rates for the thirteenth time in eighteen months in November, taking the cash rate to a twelve-year high of 4.35 percent, which has also led to a dilution of what banks can lend.

Australians looking to buy a home are now unlikely to be able to borrow more than five times their salary, excluding younger, single buyers from the market unless they get help from their parents or a dual-income couple.

The Australian Prudential Regulation Authority is concerned when a borrower owes more than six times their salary after a mortgage payment, with this situation occurring when the RBA cash rate was still at a record low 0.1 per cent.

First-home buyers made up a third of the housing market in December.

Mr Kohler said parents were increasingly supporting the mortgage deposits of first home buyers as subsidies for first home buyers from the federal government were only pushing up house prices.

“Despite rising prices and crushing interest rates, first-home buyers were the fastest-growing type of borrower,” he said.

'The Bank of Mama and Papa coughs up early inheritances and politicians shower them with subsidies and concessions, desperate to give the impression that they are doing something about affordability, when in fact they are making it worse.'

Together with high interest rates, record high immigration is driving up house prices and deteriorating the availability of rental housing.

The net migration level of 518,000 overseas in 2022-2023 meant that skilled migrants with money ended up buying property so they did not compete with international students for scarce rental properties.

The situation is now so bad that an average priced house is out of reach for a single average income earner, even in the apparently more affordable capital cities where house prices are much lower than those in Sydney, Melbourne or Brisbane (pictured young voters)

Australia's average property price of $759,437 in January was 7.6 times the national average full-time price of $99,174, including bonuses and overtime.

Sydney is the most expensive property market in the world, after Hong, when property prices were compared to income.

The average house and unit price of $1.122 million in January was 11.3 times the average full-time salary of $98,675 in NSW.

But Hobart is still relatively expensive, with a debt-to-income ratio of 7.5 based on the average house price of $651,807 and a lower, average full-time salary of $86,819.