australian-wage-growth-money
Wages are growing back to pre-pandemic levels. Image – Canva
  • There was a reported 2.2% annual increase
  • Home values have grew 193.1%, but wages increased 81.7% in the past 20 years
  • The increase may make it easier to accumulate a housing deposit for a mortgage

Wages are growing back to pre-pandemic levels, according to the Australian Bureau of Statistics (ABS) wage price index (WPI).

The WPI measures changes in the ‘price’ of wages and salaries over time, meaning it accounts for changes in the quality and quantity of work done.

There was a reported 2.2% annual increase, representing wage growth getting back to pre-pandemic levels, almost at the decade average growth of 2.4%.

Annual growth in Australia WPI (private and public sectors, original)

annual-growth-in-au-WPI
Source: CoreLogic

Property

According to CoreLogic, comparing the WPI with property values for the past two decades shows nominal dwelling value growth has vastly outstripped the total change in wages and salaries.

While wages increased 81.7% in the past 20 years, Australian home values have grown 193.1%.

CoreLogic said this has been further exacerbated by the recent upswing in national housing values, which has seen Australian dwelling values rise 22% in the past 13 months.

The biggest difference in growth rates is in Tasmanian with property values having risen almost 300% in the past 20 years, compared to an 84% rise in the WPI.

Tasmania-internal
Tasmania has the biggest difference in growth rates. Image – Canva

The next largest gap in the 20 year growth rates were across the ACT, VIC, and NSW.

Wages and house price growth has been most comparable across the NT, which tends to have a well-compensated, transitory workforce across the resources sector. In the past 20 years this has meant strong surges in wages amid periods of increased resources sector activity, but not as much permanent demand for housing across the territory, according to CoreLogic.

WPI: a key indicator for housing market outcomes

CoreLogic said there are several implications of relatively low wages growth relative to house prices.

When house prices accelerate faster than incomes, it is harder to accumulate a housing deposit for a mortgage.

In the year to October, a 20% deposit on the median Australian dwelling value increased by $25,417, to a total of $137,268.

With wages increasing just 2.2% in the year to September, CoreLogic said it is difficult for household savings to keep up with this kind of increase.

Another implication indicated by CoreLogic is the lower purchasing power when it comes to mortgage serviceability over time.

The portion of income paid to service housing debt has stayed relatively low and steady over time because of low mortgage rates.

However, low inflation and wages growth means households cannot pay down their mortgage as easily or quickly.

CoreLogic said this can be burdensome for relatively new mortgage holders, taking on long loans of 30 years, especially if mortgage rates rise.

In the near term, wages growth will also indicate the movements in the trajectory of the housing cycle as movements in wages and inflation influence the cash rate, according to CoreLogic.

The Reserve Bank of Australia Governor Philip Lowe suggested annual wages growth could be a ‘guidepost’ for the kind of sustainable inflation needed to trigger a cash rate hike.

RBA Governor
Reserve Bank of Australia Governor, Philip Lowe. Source: RBA website.

CoreLogic said Mr Lowe alluded to an annual wage price increase of 3% or more being required to maintain inflation between its target range of 2 and 3%.

A higher cash rate would likely put downward pressure on housing prices, but at this stage the RBA maintains that this is unlikely for 2022, according to CoreLogic

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