Is maintaining a home really costing you more?

Has owning a home really become more expensive? Matt Grudnoff investigates.

Is maintaining a home worth it?

Some prices go up and some prices go down. Some prices make it into the news and public discussion and others sit silently in the background.

Electricity and petrol prices are regularly discussed. Everyone has a theory and a villain as to why they seem to be endlessly rising. Other prices are discussed because they don’t go up. Discussion about cheap milk regularly breaks out.

Other prices sit quietly in the background. While some might be amazed that milk prices didn’t rise in eight years, spare a thought for manufacturers of clothing and footwear. These products are actually cheaper today than they were in 1998. That’s no increase in about 20 years.

And they’re not the only prices to have gone down. Household furnishings and equipment are also lower today than they were about 20 years ago.

While we lament every increase in our electricity bill, there are some large price increases that rarely attract a mention. Since 1998, tobacco has gone up in price more than anything else, mainly because of the increase in tax. Tobacco products have increased fivefold in price since 1998, compared to electricity, which has tripled, and the Consumer Price Index (CPI), which has increased by 70 per cent. Of course, increasing tobacco prices is a policy objective designed to cut smoking rates and improve health outcomes.

With so many prices of different products in different categories, it can be difficult to keep up. So we tend to focus our attention on the price of things that are most discussed, such as electricity, petrol and milk.

In this article, I focus on the cost of housing – not just the cost of buying a house, but the broader costs of owning a home.

To do this, I’m going to construct a new category of prices that I’ll call Broad Housing Costs (BHC). This will include:

  • current housing costs, which include rents, the cost of building a house as well as rates and other taxes. (Importantly, it does not include mortgage payments, buying existing housing or the land the house is on)
  • domestic fuel and power, which includes various utilities such as electricity, gas and water
  • household furnishings and equipment, which include such things as furniture, household textiles, appliances, utensils and tools
  • household services and operation, which include cleaning and maintenance products as well as household services such as cleaners and gardeners.

Together, this new price index will give us an insight into the cost of running a house and how that has changed over time. One way to look at our new category is to compare it with the CPI.

The figure below does just that. Starting in June 1998, it plots increases in the CPI with increases in the cost of owning and running a home.

From 1998 to December 2018, the CPI increased by about 70 per cent while BHC increased by a slightly larger 78 per cent. Between 1998 and 2009, the two costs increased by roughly the same amounts. In late 2009, BHC increased in price faster than the CPI and has stayed above the CPI since then.

What is driving the small difference between the CPI and BHC can be seen in the next figure, which breaks up BHC into its four categories. It shows that household furnishings and equipment as well as household services and operation are running below CPI and current housing costs and domestic fuel and power are running above CPI. The net result is BHC is growing at slightly faster than CPI.

The increase in domestic fuel and power after 2008 is striking. This is in large part driven by electricity and there are three phases to the price increase.

The next figure just looks at electricity and I have highlighted (in red) the period when the carbon price was put in place in 2012.

We can see that electricity prices were on the rise long before the carbon price came in. This was driven by poor regulations that allowed for what became known as the ‘gold plating’ of the network. This was where electricity distribution and transmission companies were widely criticised as having over-engineered the network in order to increase prices and earn bigger profits.

The introduction of the carbon price continues the trend of increasing prices. Its repeal decreased prices slightly, but it highlights that even without the carbon price, electricity prices would have continued to rise.

The most recent increase in electricity prices has come about because of investment uncertainty caused by the lack of genuine action on climate change.

The other interesting increase has been in current housing costs. These have increased faster than the CPI, but given the huge increase in house prices over the past 15 years, it might surprise people that they haven’t gone up faster.

In relation to current housing costs, the Australian Bureau of Statistics (ABS) measures consumer goods and specifically excludes investments and second-hand goods. This means that the land the house sits on is excluded, because it’s an investment. That is, it’s not a ‘good’ that is used up in consumption, but is instead expected to rise in value over time. The sales of houses that aren’t brand new are also excluded.

Since the house itself should generally go down in price as it gets older, increases in house prices must be because of increases in land prices. This means house price increases are largely excluded from the CPI.

So the running of a home has been increasing faster than the CPI since about 2007 and this is largely due to the cost of building new homes, rents and the increasing price of utilities. Bipartisan effective climate change policy in the energy sector would probably do more than anything else to slow the increased costs of running a home.

This article first appeared in the March 2019 Retirement Affordability Index.

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    Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    17th Apr 2019
    8:31pm
    I find the biggest costs are council rates, water and insurance, and trade labour. Trade labour costs have gone from sublime to ridiculous, and it's all but impossible to find anyone to do a small to medium job. I recently wanted a handyman for half a day and he said he would work for $45 per hour but only if I paid for a minimum of 3 x 8 hour days.
    CoogeeGuy
    21st Apr 2019
    9:10am
    And for us apartment dwellers, added to those costs, is the dreaded BODY CORPORATE fees at around $1,500 a quarter!
    Anonymous
    18th Jun 2019
    11:58am
    CoogeeGuy - you are correct about the body corp. But after checking ours I found 60% of the cost is insurance. Granted that if you own your own house you do not have to insure it but with a unit it is compulsory and ever increasing. A lot of home owners in my area do not carry home and content insurance at all. If anything should happen I suppose they go on Current Affair asking the public for help. Not recommended.
    Anonymous
    21st Jun 2019
    8:09am
    glad we no longer have a house and the associated maintenance of it and the grounds surrounding it. live in a not for profit village and it is great not having to worry about any maintenance...wished we had moved sooner.

    17th Apr 2019
    8:31pm
    I find the biggest costs are council rates, water and insurance, and trade labour. Trade labour costs have gone from sublime to ridiculous, and it's all but impossible to find anyone to do a small to medium job. I recently wanted a handyman for half a day and he said he would work for $45 per hour but only if I paid for a minimum of 3 x 8 hour days.
    Anonymous
    20th Apr 2019
    3:26pm
    having previously owned a large home built in 1991 I am pleased we are out of it now as the cost of maintaining it was steadily costing us more all the time and with rates not far off $2000 a year I am pleased we decided to downsize. has freed us up to travel even more and financially so much better off and with electricity/gas/monthy fees all direct debit no more worrying about paying bills on time.
    Paddington
    21st Apr 2019
    11:34am
    Well, the premise is wrong for a start! A couple pensioners are not on $833.15 per week but just under $700 per week so you need to work your bills out to under that amount.
    I have pointed this out to YLC and it needs to be fixed.
    Having said that, it is a good idea to itemise everything and see what you are spending each week, month and year and try to save where you can but adjust your final figure to what you actually receive.
    That may also apply to people funding their own retirement or partly. You can only operate on what you have to work with!
    Food is our biggest followed by health care. We never eat out though! Council rates are about $1200 a year so not too bad compared to others. Water is a rip off and not fair or right where that has landed.
    We have solar which is great and gas has risen in recent years which used to be cheap.
    Every little saving is important so always good to be vigilant with revisiting insurances, health cover, etc. to make sure you can get the best deals.
    Watching tv this morning and the number of homeless makes you realise we are lucky to be housed as many are not!
    Greg
    21st Apr 2019
    12:09pm
    If you have a mobile and can use apps there's a great one - Track My Spend. It's from ASIC's MonetSmart website, I use it religiously. You just log in everything you buy or services you pay for, very easy to use and you can call up a summary anytime of your total expenses. You can send the file as an email to your PC and then open a spreadsheet and "play around" with the figures, get totals for this and that and see exactly where your money is going.Straight up I can see the petrol total is line ball with my budget or food is over $1500 for the year. I love it.

    https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mobile-apps/trackmyspend
    Paddington
    21st Apr 2019
    5:17pm
    Ok thanks Greg!
    Anonymous
    21st Apr 2019
    5:25pm
    Council rates (with pension discount) are $2100 pa, body corp $2400 pa and our private health insurance (which at our age we want to keep) $5250 for 2 for the year. You do the sums. The first 2 make me wonder whether we would not better off renting with rent assistance. But it won't get any better whoever comes into Govt. Been in this country since John Gorton was PM. Life was easier then money wise, technology today is better.
    Paddington
    18th Jun 2019
    11:40am
    Cowboy Jim, that is too much for private health cover. You are paying nearly $10,000 before you even buy food or pay other basics.
    You could shave a few grand off that health by shopping around. Our recent change brought our private cover down to $288 a month with $500 copayment. It is Mildura Health Fund not for profit.
    It certainly does make a difference who the government is as the present one is not there for people like us.
    older&wiser
    18th Jun 2019
    2:41pm
    Paddington - I too have changed to Mildura. FAR better cover and conditions than previous fund who was always increasing fees, but lowering coverage. For $5250 a year - that is just ludicrous. I can guarantee would not be more coverage than what (you and I) have. I am single, and $154 a month.
    older&wiser
    18th Jun 2019
    2:50pm
    I agree - that Council Rates are the absolute killer. Every area is different. I owned a house in a small country town in western Qld - land value $68,000. Moved back to my house in Brisbane suburb - land value $365,000. Yet my country rates were considerably dearer than city. Hear allot of people say to 'move out to the country for cheaper housing'. Weigh it up - lack of service people, higher rates, dearer petrol, can't just pop into a shop to get something. Many times I had to wait for a tradesperson to visit the town to get things done. Eg - my folding patio timber doors needed work - they had to be taken down and transported to nearest large town 350 kms away. No such thing as someone in my small town to do it. Cost was horrendous.
    For my city house - whilst I was working, I spent a great deal of money doing up my home to 'prepare' for retirement on the pension. I had roof redone, new high security fences, extra raintank, new washing machine, new fridge, new stove, replaced taps/shower head in bathroom. Extra Lighting installed, security latch on fixed from pedestrian gate. New liner in pool. Already have solar (luckily on high buyback rate). In the 2 years I have been back at house, only house hold repairs I've done is put up an extra hanging rail in the kitchen! Nothing else needs doing. Only me, so not much maintenance required. But I do put money away in case.
    Cheezil61
    21st Apr 2019
    9:38pm
    Wiould be good to see the timeline for average wages/income/pension/Centrelink over same period of time.. pretty sure they are falling short/decreasing for many people ? I've been at my job for 17yrs & last few years there we've forgone payrises in lieu of keeping conditions (apart from a small payrise last year!
    Rae
    22nd Apr 2019
    7:38am
    Yes GDP and CPI are poorly measured right now. Economists need to go back to figuring out how to cost the 21st century with it's fiat money supply. By not including housing costs where the inflation is happening the measurements are very inaccurate.
    MICK
    18th Jun 2019
    10:07am
    Owning property is not the fancy free life which many people who rent believe it is. Along with a mortgage comes rates, insurance, maintenance and repairs. It can be tough but then the real benefit is you have a roof over your head and its yours.

    The rest of the story above plays with government produced inflation figures. Given that our main costs are the mortgage, food, health care and car running costs then inflation has to be much higher than reported. Same deal as unemployment figures which are also fraudulently manipulated to tell the story the government wants to tell.
    I wish those who wrote stories did not use official figures as though they were accurate. They're not....and are heavily massaged to keep the masses calm and protect the financial system from panic.
    KSS
    18th Jun 2019
    1:03pm
    Yes authors. Don't use official figures, get your information from MICK instead!
    Paddington
    18th Jun 2019
    3:15pm
    Well, KSS, prefer Mick’s thinking style to yours or your mates like Adrianus and a few other dinosaurs.
    roy
    18th Jun 2019
    5:05pm
    Good old MICK, ever the expert, MICK for PM.

    18th Jun 2019
    10:43am
    We have pride in our home and maintain it as best as we can. The lawns are neat, the items needing paint are done and the gardens are tidy. We live in a home, not a house property and our neighbourhood is kept in a similar fashion. A friend had more important things to do other than home maintenance and when he downsized the return was little more than land value with the house being torn down and a new one built. His house was dilapidated, hadn't been painted for so long that the boards were bare of any paint, windows were cracked and the fences were falling over. I consider any repairs to our home as protecting an asset, not a chore.
    Hillbillypete
    18th Jun 2019
    10:48am
    And you have to wonder why people sell up and live on the road full time!
    purplejan88
    18th Jun 2019
    12:20pm
    that option fast looking real good this way - hope in 6 weeks time i can be free!!!
    Hillbillypete
    18th Jun 2019
    5:12pm
    Purplejan88 you will never go back!
    Anonymous
    21st Jun 2019
    8:11am
    to each their own but it would not suit me at all.
    BElle
    18th Jun 2019
    11:40am
    It may not seem to make sense when you are starting out on the journey of life. There are many commitments and looking forward is often not considered necessary ---- until you reach the age when it does become important. If you have not secured your position in life to a large extent then this will become a hardship in later years. We are all meant to live longer than our parents. My father was 100 my mother 91. Not sure that I actually want to live beyond these thresholds. This means that no inheritance came our way until a year ago. A bit late to bank on for our future. It is important, not just to live within our means, but that we think forward and make decisions that will improve our retirement years. This does not necessarily mean investment but securing a home and a lifestyle that is enduring.
    Paddington
    18th Jun 2019
    11:46am
    Some nice thinking there BElle! I always believed in the necessity of owning my own home on retirement as there was little super. Family is everything to me so our home is also for having them when they need to be here and also for celebrations. The one we are in now is only 20 years old, built in 2000, not tiny but not a mansion. The area is nice too.
    Silverhead
    18th Jun 2019
    11:47am
    I didnt clean my gutters regularly for several years,Im in a very leafy area with gum trees. Consequently I had to replace gutters all round for $4K. Made sure I got easy to clean gutters rather than fancy colonial. My council used to subsidise my gutter clean out for the last 2 years, now they have stopped that. I get some of my tradies for cash. For car insurance and house insurance, the best company is Youi. Ive never claimed from them, nor do I get a cut from recommending them. Ive done the research on insurance, Woolies wanted a certificate to say my house wiring was under 10 years old!!! My insurance prem is $550, I got quotes as much as $1200. I have my contents rated quite low, as there is so much good s/hand stuff available on Gumtree if I had a fire. My rates are $1000 a year so I cant complain. Water is $280 per quarter, but I have a 27000L tank for the garden which is big.
    When theres weeding or unskilled work to be done, I will ask a neighbour if his adolscent son/daughter wants to lay some mulch or weeding, and pay $15 per hour. They can be unreliable. I also look on Gumtree for unskilled workers. I found a top class plumber on Gumtree, but also got a dud previously.
    Anonymous
    18th Jun 2019
    12:08pm
    Secret with tradies and handymen here is paying in cash. They are always available when needed, pay for the material first and then when the job is finished I pay them for labor. They do not work for credit or debit cards and cheques are long gone. People here even pay their rates in cash and council certainly does not like that.
    maxchugg
    20th Jun 2019
    10:56am
    Cowboy Jim, you have given me a laugh!

    Do you remember when the GST was proposed and one of the claims was that it would destroy the "underground economy?" I spoke to someone in officialdom at the time and told him that when the GST arrived the underground economy would boom. I said that in the past, when I wanted tradesmen, they would give me a discount for cash, when the GST arrived I would be the one suggesting a cash payment to save the GST on labour.

    I'm surprised that the government has not acted to solve this problem by eliminating cash and I'm confident that they're working on it.
    maxchugg
    20th Jun 2019
    10:56am
    Cowboy Jim, you have given me a laugh!

    Do you remember when the GST was proposed and one of the claims was that it would destroy the "underground economy?" I spoke to someone in officialdom at the time and told him that when the GST arrived the underground economy would boom. I said that in the past, when I wanted tradesmen, they would give me a discount for cash, when the GST arrived I would be the one suggesting a cash payment to save the GST on labour.

    I'm surprised that the government has not acted to solve this problem by eliminating cash and I'm confident that they're working on it.
    Anonymous
    21st Jun 2019
    8:13am
    it does nothing for the rest of society if people pay cash and tax is not being paid. read this week that the tax office is now cracking down on this.
    Anonymous
    23rd Jun 2019
    9:11am
    From my experience with property, the tradies and handymen who ask for cash and no paperwork are notorious for cutting corners on the job and adding extras or performance limitations later.

    We have never done any good with them. If they will short the government and ATO they will have no conscience or hesitation in doing the same to you.
    sunny
    18th Jun 2019
    12:16pm
    We had a lovely family home, really cared for, but that time came when selling was better for us. Have been told by a neighbor the youngsters have demolished the inside. Updating everything (insult) and basically ruined a lovely home. You could save thousands over the years, and still get a great price at the end.
    KSS
    18th Jun 2019
    1:08pm
    "ruined" in your opinion: "improved and updated" in the new owners'.
    Anonymous
    21st Jun 2019
    8:14am
    once we sold ours I could not care less what they did with the house; could burn it down for all I care.
    Franky
    18th Jun 2019
    12:51pm
    I had a dream of owning a number of rental properties by the time I retired. Gave up about 15 years ago when I could already see rental income not keeping pace with the costs of insurance, council rates and maintenance. this is the reason why more smart people today choose to rent rather than own property. This trend will continue especially since job security is more scarce now and workers have to be able to move to where the work is
    Anonymous
    19th Jun 2019
    9:25am
    Quite a few of us had that dream, Franky. Mine soured when the mortgage rates hit 17.4% in my case. Could not get out of the game fast enough, on top of it Victoria had land tax on investment properties as well as a Financial Institutions Duty. Sold up everything, moved to Qld, bought a small place and had the money riding in the building society (now a bank) at 18% term deposit. With the rental tribunal today, insurance, delayed payment of rent thru hardship you'd have to have rocks in the head to be a landlord.
    Anonymous
    21st Jun 2019
    8:15am
    those who bought into the commonwealth bank when Keating and Hawke privatised it are sitting back laughing now...they bought at $5.40 and current price is around $84
    shirboy
    18th Jun 2019
    3:58pm
    Being a widow for the last 4 years I have to pay everything that a couple would normally pay & also $50 a fortnight for lawn maintenance except when the couch lawn slows down & then it may be on a monthly basis. I have used Airtasker to negotiate a painting job. Life is not easy on the aged pension.
    Justsane
    18th Jun 2019
    7:33pm
    I am sure that the single age pension should be increased. That is unless the government is happy with elderly single women being homeless.
    KB
    18th Jun 2019
    3:58pm
    There are positives and negatives of owning your own home or renting. You have high maintenance cots such as ensuring the gutters are clean ensuring that plumbing and air conditioners are in good order. My landlord had a tradie to do repairs so I am glad that I do not have to pay for the repair costs. Still have other expenses such as the gardener and my own expenses
    KB
    18th Jun 2019
    3:58pm
    There are positives and negatives of owning your own home or renting. You have high maintenance cots such as ensuring the gutters are clean ensuring that plumbing and air conditioners are in good order. My landlord had a tradie to do repairs so I am glad that I do not have to pay for the repair costs. Still have other expenses such as the gardener and my own expenses
    BrianS
    19th Jun 2019
    1:09am
    If you want to get a BIG scare try getting work done properly by a tradesman where it involves older fibro etc that may have asbestos in it.

    The costs involved are horrendous & remediation work to remove such materials is through the roof.

    There have been suggestions that it may yet become mandatory soon that all premises will have an asbestos inspection & an Asbestos Register will then have to be legally kept in a readily accessible location - some suggestions are that it be kept in the electrical switchboard - so there will then be no excuse for not knowing that the work being done will involve asbestos.

    Regards,
    Brian.

    19th Jun 2019
    10:50am
    The full costs of managing and maintaining government housing must be horrendous. Perhaps someone has figures.

    For that reason alone the community is much better off where the government policy - implemented and not just rhetoric - is aimed at ensuring that the elderly can continue to live in the home in which they raised their family and where they have community links and are familiar with the geography, services (eg medical) and so on.

    However, mass immigration for that 'Big Australia' is putting pressure on the old to sell up because of inflated land rates. There are other problems too, such as town and road planning not being sufficiently considerate of their needs.
    GeorgeM
    19th Jun 2019
    4:36pm
    Firstly, I find it hard to believe this analysis, as it may be based on incorrect data or wrongly weighted items.
    For example, Insurance is a major cost for all house owners, yet it is not mentioned whether it is covered, and if so, in which category.
    The graph showing "Household furnishings and equipment" going down is unbelievable, as you cannot get anything cheaper now than in 1998. Yes, you can get better equipment, especially electronics, with lot more features, however costs have always gone up only. For example, recently we replaced the dilapidated blinds with curtains, and found the quotes were TWICE what they were 2 decades ago!
    Also, the category of "Household services and operation" going up less than CPI is also unbelievable - anyone who has tried to use tradies, or companies, for any work in and around the house would know that.
    I wonder if the Australia Institute & Matt are working against homeowners to justify their usual rant to get more assistance for renter pensioners rather than for homeowners, as the results are, to repeat, flatly UNBELIEVABLE.