Tuesday, March 9, 2010

Thinking like an economist

This article is the first I have come across that compares housing prices and costs to hours worked, which is the ultimate measure for comparing housing affordability across countries or over time (although hours worked for average rent would also be a good measure).

According to the CommSec analysis it now takes 19,374 working hours to pay for an average house at the average hourly rate of pay, compared to just 7,500 hours in 1960.  That's ten years of full time work in 2010 versus 3.9 years in 1960.  I admit the data may be a little skewed if it is truly generated using averages (means), rather than medians, however there seems to be a strong message coming through.

It also supports my claim about the leisure dilemma, and the ability of others to bid up prices if they choose to work more hours.


  1. But, people are living in much bigger houses, with more and better appliances, big windows, sliding doors, and better finishes, on average.

    Possibly the measure should be recast as labor hours per square foot, with some adjustment for quality.

    People might have a leisure problem if their tastes didn't encourage them to work more.


  2. Agree. Labour hours per sqm of land and per sqm of home would also be interesting, and probably a lot more informative.

  3. Labour per sqm would be interesting as well, however, the growth in house prices is largely a reflection of the price of the underlying land. While the sizes of houses have increased over the past 30 years, the cost of building has remained largely static (in real terms) due to improvements in building and engineering. Over the same period, the price of land has increased several fold, much of this during the last 10 years.


  4. Tim - I think you will find that building costs per SQM have risen at the CPI rate, but size unfortunately (and I say that with a small tear in my eye) does matter.