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wage growth

To answer the question, we need three things:

  1. Average Australian house price from 2000 to 2020
  2. The average yearly increase in house prices from 2000 to 2020
  3. Average full time earnings

1) Australian house prices from 2000 to 2020

Below is a table of average house prices in Australia from 2000 to 2020.

House prices in Australia increased from approximately $200,714 in the year 2000 to approximately $690,200 by March 2020.

average house prices

2) Average yearly increase in house prices from 2000 to 2020

What percentage increase would we need each year to go from $200,000 in year 1 to $690,000 in year 20?

To find out let’s plug the data into a compound calculator:

compound calculator

compound graph

We will use the above figure of 6.4% for the average yearly increase in house prices from 2000 to 2020.

3) Average full-time earnings

For this we need to look at Average Weekly Earnings from the Australian Bureau of Statistics (ABS) – series 6302.0

The latest data release from the ABS is November 2019.

Full-time adult average weekly ordinary time earnings were $1,658.40 in November 2019.

$1,658.40 times 52 gives us a yearly figure of $86,237.

So average full-time earnings in November 2019 in Australia was $86,237.

 

ABS series 6302

If house prices in Australia increased by 6.4% for one more year, what would the increase be in dollars?

$690,200 = 100%

X = 6.4%

(690,200 x 6.4 ) / 100

=44,172.80

Therefore, the increase would be $44,172.80

For a worker on $86,237 per year, what wage increase do they need so they have an extra $44,173 in their hand at the end of the financial year?

First we calculate the after tax income on $86,237.

From the ATO rates table below, $86,237 – $37,000 = $49,237.

32.5% of $49,237 is $16,002.

$16,002 + $3,572 = $19,574

Therefore the after tax income is $86,237 – $19,574 = $66,663

tax rates

Source for the above image: ATO website > Rates > Individual income tax rates

Now we take 2% of $86,237 for the medicare levy, which is $1,725.

$66,663 – $1,725 = $64,938

Add our after tax income of $64,938 to the one year increase of $44,173 and we have:

$64,938 + $44,173 = $109,111.

This gives us the after tax income of $109,111 but we need the gross figure now.

Using numbers (excel for pages) and the settings from above we find the gross wage required below.

tax rates for 86k

The gross wage required is $158,374.

So what’s the percentage wage growth increase from $86,237 in 2020 to $158,374 in 2021?

( $158,374 x 100 )  / $86,237

=183.65

Therefore, the answer to the question is 83.65%.

Wage growth would need to be 83.65% over the next 12 months for a worker earning the average wage of $86,237 for it to be possible to keep up with house prices increasing from $690,200 by 6.4% for one more year. 

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