"Understand the limitations of median house prices is crucial for accurately assessing housing affordability in today's complex market." - Matthew Lapish, Senior Investment Analyst
It's the statistic splashed across every news outlet, property report, and conversation around real estate.
But while median prices are easy to grasp, they often fail to tell us what's really happening on the ground, especially when it comes to housing affordability.
In a recent episode of our Demographics Decoded podcast, Simon Kuestenmacher and I explained why this metric can be misleading and explored more meaningful ways to gauge the true cost of owning a home.
Why median house prices fall short
Median house prices represent the middle point of all property sales in a specific area-half the homes sold for more, and half sold for less.
While this sounds straightforward, it's actually a flawed way to understand market dynamics, particularly in today's Australia, where the socio-economic landscape has dramatically shifted.
Historically, the median price was useful because it captured the middle of the market in a society that was predominantly middle class.
But Australia is no longer that bell-curve-shaped society where most people sit comfortably in the middle.
Today, our economy resembles more of a U-shape-many people at the lower and upper ends of the income spectrum, with fewer in the middle.
This shift means that the typical "median" home is no longer representative of what the average Australian can realistically afford or what they aspire to own.
For instance, in a society where middle-income earners were once the backbone, the median price might have represented the type of home that the majority lived in.
But in our current U-shaped economy, the middle ground is increasingly hollowed out.
Lower-income earners can't afford median-priced homes, and higher-income earners wouldn't consider living in them.
This disconnect makes the median price largely irrelevant-it's neither representative nor aspirational.
Understanding the socio-economic shift
Let's delve deeper into why this shift has occurred.
The erosion of the middle class has roots in several economic and social changes.
Australia's job market, for example, has moved away from manufacturing and middle-skilled jobs toward a knowledge-based economy dominated by high-skilled, high-paying roles.
At the same time, lower-skilled jobs have also grown, creating a polarised employment landscape.
The Australian Bureau of Statistics (ABS) categorises jobs into five skill levels.
The middle-skill jobs (skill level 3), which include trades like plumbing and electrical work, were once the backbone of Australia's middle class.
However, these jobs have been in decline due to economic shifts and policy decisions that made technical training more expensive and less accessible.
As a result, many opted for university degrees, pushing them into higher-skilled jobs, while others remained in lower-skilled roles.
This dynamic has left us with a workforce increasingly divided between high-income earners and those in low-paid, often precarious work.
With fewer people occupying middle-income roles, demand for housing has become polarised.
Developers naturally gravitate toward the high end of the market, where margins are more attractive.
Meanwhile, the kind of mid-range homes that might have been accessible to the average worker are no longer being built in sufficient numbers.
This drives up the median price, making it a poor reflection of what's actually happening across different market segments.
Local insights matter more
Given this complexity, how should you measure affordability?
The key is to look beyond the headline-grabbing median price and focus on more granular data.
Consider specific suburbs, property types, and even individual streets.
For example, in a suburb like Melbourne's Brighton, you'll find everything from multi-million dollar mansions with beach views to modest single-fronted homes just a few blocks away.
A single median price simply can't capture these vast differences.
This approach becomes even more critical in areas with diverse property types.
In new outer suburbs or greenfield developments, where homes are often uniform in size and style, median prices can provide a more accurate snapshot.
But in established, diverse suburbs, where the housing stock varies widely, the median becomes a crude and often misleading measure.
A more accurate way to assess the market is to look at specific segments within a suburb, such as the median price for three-bedroom homes, rather than all properties lumped together.
This gives a clearer picture of what people are actually buying and living in, making it far more relevant for homebuyers and investors alike.
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