Stagnating Incomes May Be Driving A Commonwealth Real Estate Bubble

Stagnating Incomes May Be Driving A Commonwealth Real Estate Bubble

Yesterday we looked at rapidly rising real estate prices in Canada, New Zealand, Australia, and the UK – the largest economies in the Commonwealth realm. What we noticed was prices are soaring, relative to local currencies. By itself, this isn’t an issue. There’s nothing wrong with making a little extra money on the sale of a home.

If prices increase faster than income though, you’ve got yourself an issue. Where exactly are people getting the money to buy these homes? So today we’ll look at local incomes, how they compare, and if they can support real estate prices.

Income Across The Commonwealth

Income is rising, but inflation is consuming most of the extra money. From 2005 – 2015, pay increased 45% in Australia, 41% in New Zealand, 30% in Canada, and 1% in the UK. But when inflation was factored, those numbers were significantly less. 18% for Australia, 15% for New Zealand, 9% for Canada, and a whopping -27.86% in the UK. That’s right, in the UK the median income has dropped almost a third over ten years.

Low pay is nothing new, ask any millennial. What’s interesting is these countries have aging populations. This means one of three things:

  • People are not moving up career wise (or receiving sufficient pay increases for experience),
  • People are not receiving healthy wage increases,
  • Millennial employees are being paid much less than their Boomer counterparts, dragging household incomes lower.

None of these are great options for a country.

Globalization Woes

In a post globalized society, how your money does internationally is an import factor. A weak local currency makes imported goods more expensive, with consumers paying the difference. Conversely, a stronger currency makes it much easier to buy goods for the average family. This is important in countries that depend on imports – like Canada, Australia, New Zealand, and the UK.

This in mind, we charted local incomes in the most commonly used currency – US dollars. What we found was these countries peaked around 3-4 years ago. Aside from that, growth was relatively flat, once again highlighting the inflation issue.

Median incomes moved up marginally over 10 years everywhere but the UK, where it’s down 38% from 2005. Although, all countries are down substantially from their peaks. Australia is down 25%, New Zealand down 13%, Canada down 20%, and the UK is down a whopping 41%. Those are large drops that will be hard to make up in the near term.

Home Prices

As rapidly as income has been rising in local currencies, home prices have been rising faster. Canada’s 30% pay increase was met with a 49% increase in housing, and they’re not alone. Australia had a 45% increase in income, 59% in housing. UK a 1% increase in income, 31% increase in housing.

The only place where income increased higher than housing was New Zealand. There, income grew by 41% and home prices by 35%. This would be good news if it weren’t for the fact that homes have been expensive there since forever. Even 10 years ago, New Zealanders have struggled to purchase affordable housing.

All four of these countries have red hot real estate markets. The question is who’s buying these homes and how are they doing it? If income isn’t moving as quickly as the cost of real estate, alarms should be going off.

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  • Alice 8 years ago

    Wow, as crappy as it is in Canada – making almost a quarter less than your did in the UK sounds mega miserable.

  • David 7 years ago

    the people buying up properties are financial insiders and the wealthy who benefits from trillions pumped out by central banks around the world. They rake in the wealth from booming stock market and real estate market while the average wage earner has no discretionary income left after paying for housing.

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    […] a lack of economic opportunity that previous generations had, and many even have negative earnings. Stagnating wages, and high debt loads are combining with an increased cost of living. This leaves little room to […]

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