Smashed avocado & housing affordability: What’s the deal?

Housing affordability is in the news. A lot. Last week the “smashed avocado” debate came up as a reason “young people can’t get into the housing market”. Again.

I flew in from Singapore this morning and, as is my want, I went for a cafe brunch. This time included a “smashy” with avocado, tomato & feta on sourdough with a flat white coffee. For any non Aussie’s reading this, a “smashy” is short for “smashed avocado on toast”. A flat white coffee is close to a latte. I will not raise the ire of the purists by suggesting they’re the same!

It got me thinking about a piece I read last week. Why is such a delicious and relatively healthy food choice such a flash point in this debate?

The premise is that young people are spending far too much money eating out and not saving enough. Hence why they can’t buy a house.

My brunch today cost $16.50. The average house deposit is now approx $215K. That’s 13,030 brunches. The numbers do suggest something else is going on here.

The first issue is the maths. A couple of years ago I did the numbers on how much it would cost to buy my apartment from scratch. Also how much the monthly payments would be.

I’d have to earn double what I earn now (and I’m in top category already) to afford it. That would also mean working 80+ hours a week with all the health impacts that would have. I tend towards retail therapy as stress relief so it may not work anyway…….

I did buy my first place at the age of 28 (with my partner), and that was a stretch at the time. I’ve lived in a time where I got on the property ladder at the right time and made sure I stayed on it.

At no time did I deprive myself of a decent brunch to do this! Saving was about what car we bought & what holidays we went on. One factor was not getting caught up in the stock purchase frenzy of the late 90’s during the dot com boom.

The second issue is the fall in home ownership rates of those in their 40’s & 50’s. Retirement funding assumes home ownership to work, so this is particularly concerning. It’s also not unique to the “young people who can’t save”. Both millennials and Gen X go for brunch.

The third problem I had with the analysis I saw last week was the low cost of servicing a loan due to low interest rates. So everything’s fine!

Does anyone remember the “debt it good” mantra from the 80's? We never lost it. It’s had different names since but it’s the same thing.

Interest rates go down and up, they are historically low at the moment. At some point in the future they will go up. They don’t have to go up by much for many recent home acquirers to have a major problem.

If you have a problem where no solution seems to fix it, there’s often one or two factors at play:

1. Until all the stakeholders admit there’s a problem, it doesn’t get fixed. A lot of the “smashed avocado” argument seems to be based on a reluctance to admit things have changed.

“We saved, we struggled, we didn’t go for instant gratification. Young people today have no idea”. I’ve been hearing versions of the same thing for years, including when I was a teenager.

The maths tells me things have changed.

2. If you try a solution and it doesn’t work, chances are you were trying to solve the wrong problem.

The current proposal of using superannuation to get a deposit is a case in point. This assumes the deposit is the problem. It’s not. It’s symptomatic of the larger problem.

Saving for a deposit shows a track record of the ability to save. In the eyes of the lender this is an indicator of lower risk to approve the loan.

As Paul Keating pointed out (in his usual eloquent style), all this will do is drive up prices.

The current problem is best shown by the ratio of average house price to average income. By any indicator this ratio has grown.

Mathematically, if you want to increase the rate of home ownership, there are only two options. Income either goes up or house prices go down.

Incomes have been stagnant for some time and there’s nothing to suggest this will change for now.

A drop in house prices in the past has created substantial economic disruption. No politician wants to trigger that.

At the core is an assumption home ownership is necessary. That has been the case for the last 100 years or so in the West. Perhaps like so many other areas, this is changing and new models will appear.

In the meantime, my advice to “young people” is enjoy those smashy’s. They’re tasty and their a lot healthier than the food I ate at their age.