How much of a pay rise you’d need to buy a bigger house

Prospective home buyers hoping to afford a bigger house would need to get a pay rise of as much as tens of thousands of dollars.

Someone trying to buy a typical four-bedroom house would need to earn much more to be approved for a home loan than if they chose a three-bedder.

It can be a financial stretch to upgrade from a three-bedroom to a four-bedroom house.Credit: Chris Hopkins

In practice, some households without substantial gifts from family are forced to buy further away from the city or compromise on space.

The median price for a three-bedroom house in Sydney is $1,166,000, on Domain figures. Assuming a buyer had a 20 per cent deposit, they would need a gross annual income of $217,800 to borrow enough to be approved for a loan, Canstar modelling shows.

But to buy Sydney’s median four-bedroom house for $1.5 million the buyer would need a gross income of $281,100 – an increase of more than $60,000.

The average income for a full-time worker is about $98,000 a year, according to Australian Bureau of Statistics data.

In Melbourne, a buyer looking to purchase a median three-bedroom house for $804,522 would need a gross annual income of $153,100 to get a home loan.

But if they opted for a typical four-bedroom house for $929,522 they would need to earn $173,800, an increase of about $20,000.

A Brisbane buyer would need to earn $137,400 to buy the typical three-bedroom house, but that rises to $153,900 if they searched for a four-bedroom instead.

And a Perth buyer of a typical three-bedroom house would need an income of $111,800, rising to $137,400 if they wanted one more bedroom.

The modelling assumes a 30-year loan and modest annual expenses.

Canstar’s group executive of financial services Steve Mickenbecker said someone switching jobs might be able to negotiate a higher salary, but the outlook was less rosy for someone asking for a pay rise from their current employer.

“Unfortunately I think the jumps required in Sydney in particular are just unrealistic,” Mickenbecker said.

“Those income levels to afford even a two-bedroom, a three-bedroom house right across the country are a lot larger than the average income.”

Families seeking more space would need a large pay rise.Credit: Chris Hopkins

It would be more achievable for dual-income couples seeking a three-bedroom house in most cities, although Sydney still looked out of reach, and families on one income would face a big stretch while four-bedrooms were more of a challenge.

He said households could compromise by buying a home they could extend in future, moving further away, or by young children sharing bedrooms, but ultimately an undersupply of homes compared to demand was keeping housing costs high.

“The answer has to be in the town planning – in apartments, even in three-bedroom apartments, you’re unlikely to have multiple living areas,” he said.

“If you’re going to increase the density, go up rather than out, you need community spaces so people can maintain their sanity and have a bit of community feel.”

Buyers without family help would need a high salary.Credit: Peter Rae

Lead economist at Impact Economics and Policy, Angela Jackson, warned of the lack of three and four-bedroom homes in areas families want to live.

“It means moving further away from work and that’s longer commute times, higher costs, lower productivity and time with family,” she said. “Or having to take lower-wage jobs closer to home. So it has a significant impact.

“Wages are growing faster at the moment than they have done over the past decade. We’re talking about three or four per cent a year, which clearly isn’t $60,000.”

In addition, many families’ income drops when they have young children as they go from two incomes to one or one and a half.

Jackson said development of medium-density housing in areas close to jobs could help, as well as incentivising empty nesters to downsize to free up larger housing stock.

Mortgage broker Chris Foster Ramsay said he is seeing more and more potential borrowers who can’t get a loan for the house they want, as interest rates and house prices remain high.

Alternatives include buying the home as an investment property until their income rises enough that they can afford to move in, or finding a family member to go on the loan with them, the director of Foster Ramsay Finance said.

He reviews spending with clients to cut down on entertainment, meals out and subscriptions, while closing credit cards can also help increase how much they can borrow.

Buyers may also have luck searching in neighbouring suburbs, but often preferred a more modest home in their desired location to a move further away, he said.

“Once we’ve realigned the living expenses, including everything we can do on that side, say the case study can’t afford a four-bedroom two-bathroom but they can afford a three-bedroom one-bathroom [in their preferred suburb] … and they are acceptable to that customer, then that usually is the preference,” he said.