Which Generation had it toughest Financially in Australia?

Michael Sauer
Jun 10
3 min read

Let's solve the great debate!

The figures in the following table are all percentage costs of the yearly median household after-tax income:

Housing Cost

House prices have increased astronomically because of the first rule of economics: supply and demand. As populations increase, land and houses in desirable areas become more valuable.

Over the last 40 years, the house price to income ratio has increased from 3 to 8 times.

The extreme median house cost to median household income ratio of today mean several things:

Many people can no longer afford to buy an 'average' house on an 'average' income (particularly in an area they want to live or could be convenient for them).
Most households require two income earners to afford a mortgage. Interestingly, the increase in work participation rates has only helped to drive up the cost of housing as land is a finite resource.
There is less money for discretionary items, and therefore, the cost of those have reduced substantially.

Cost of Groceries

Like housing, groceries are a necessity. However, they differ because they are not 'finite'. You can't add more parcels of land to a developed suburb, however, you can produce more food and through process improvements, make the cost cheaper over time.

This helps explain why grocery costs are relatively consistent but slowly declining as production becomes more efficient. Interestingly, the cost of groceries actually increased over the last couple of years due to global inflationary pressures, which anecdotally everyone would already be feeling at the checkout.

Cost of a Standard TV

TV prices have reduced substantially over time due to:

More competition.
Better technology.
More efficient/cheaper production supply chains.
People having less discretionary money, as a proportion of their total income.

Melbourne to London Economy Return

International travel has become cheaper over time due to:

More competition.
Lower levels of service / comfort.
People having less discretionary money, as a proportion of their total income.

Conclusion

You will often see different generations debate which one had it harder financially, and interestingly, both will often be correct with the arguments they use.

Baby Boomers will often suggest the reason Millennials or Gen Z can't afford houses is because they spend too much on discretionary expenses. And this is true for them because discretionary expenses were much more expensive relatively back in 1985, and, you could get ahead by cutting back in these areas.

However, younger generations will quite rightly point out that relative ratios such as the house price to income ratio increasing from 3 to 8 is proof that something needs to be done to address the housing affordability crisis, and that relatively speaking, cutting down on discretionary expenses won't have a big impact on their ability to afford a home.

Both generations views are correct in the context of their lived experience.

Whilst much more needs to be done to improve housing affordability, there is an truth to housing: As the most finite asset or expense, there is always going to be demand that continues to drive prices.

References:

Housing Cost Percentage Over Time

Year	Median House Price (AUD)	Average Mortgage Repayment (Monthly)	After-Tax Income (Annual)	Housing Cost Percentage
1985	$60,000	$560	$15,300	44%
2005	$400,000	$2,400	$56,019	51%
2024	$1,025,000	$4,920	$68,000	87%

Sources: abs.gov.au, proptechnow.com.au, CountryEconomy

In 1995, housing costs consumed about 41% of after-tax income, a significant portion but lower than the 44% in 1985. However, by 2024, this percentage had escalated to 87%, indicating a substantial increase in housing affordability challenges.

Return Flight Cost (Melbourne to London)

Year	Return Flight Cost (AUD)	Average Full-Time Income (Annual)	Flight Cost as Percentage of Income
1980	$600	$18,000	3.3%
1995	$1,200	$29,000	4.1%
2005	$1,800	$56,019	3.2%
2024	$1,698	$90,000	1.9%

Sources: FareDetective, CountryEconomy

Cost of a Standard Television

1985

Average Price: A standard 20-inch CRT television cost approximately $1,000.
Average Household Income: Around $18,000 per year.
Percentage of Income: Approximately 5.6%.

2005

Average Price: A 32-inch flat-screen television ranged between $1,500 and $2,000.
Average Household Income: Approximately $56,019 per year.
Percentage of Income: Between 2.7% and 3.6%.