Residz Team 4 min read
Are you getting nervous about talk of ‘recession’, ‘crisis’, and even ‘depression?’ I’m certainly feeling jittery about current inflation and the high cost of living. It’s hard not to be, with both the UK and U.S. experiencing the highest inflation in 40 years, and Australia on its tail with its highest jump in 20.
For mortgage holders there is added pressure on their pay packet. The RBA has lifted interest rates for three months in a row in an attempt to lower inflation, taking the cash rate to 1.35%.
Better off being here
Cold comfort when you pay the mortgage or get your gas bill perhaps, but we’ve got it pretty good in Australia compared with New Yorkers. New data from Numbeo shows all Australian cities enjoy a lower cost of living than the Big Apple. New York City is widely recognised as one of the most expensive cities in the world, according to Numbeo, the world’s largest database of user-contributed data on cities and countries.
Sure, in New York the average price of lettuce is only $US2.70 ($AUDS3.94). And, yes, Australian lettuce has surged 150% in price in 12 months, going from a national average of $2 a lettuce last year to $5 in 2022. Pandemic-related freight issues, and heavy rain and low sunlight in Queensland and NSW is behind the reduced supply here.
But in New York a ‘regular cappuccino’ costs over $7.40 in Aussie dollars! Rice in New York is averaging $AUD10.25 a kilo, compared with $AUD2.68 in Sydney. And, according to Albert Hong in his Quora post,
“the cost of living in NYC is much higher than Sydney. Rent on average is 15-20% higher and assuming rent represents 40% of your spending, and generously assuming consumer goods, restaurants, groceries, utilities, etc are net-net equal, you're left with an overall higher cost of living by definition.”
Apple Isle has lower cost of living than Big Apple
Numbeo says that a New York family of four estimated monthly costs are $AUD7,482 (without rent). A single person's estimated monthly costs are $AUD2,029 (without rent). A 3-bedroom apartment in New York rents on average for $AUD10,000 a month and can go as high as $14,000 per month.
The cost of living in Hobart is around 74% that of New York.
Sydney is much closer to New York in terms of cost of living, at over 83% of the Big Apple’s cost of living.
Here are Australia’s cities and the cost of living as a percentage of New York’s:
Sydney 83.2
Darwin 82.1
Brisbane 79.4
Perth 77.3
Melbourne 76.8
Adelaide 76.6
Canberra 75.9
Hobart 73.9
Our higher purchasing power helps too
Numbeo compared the cost of living in 578 cities. It also looked at the purchasing power of the population in each of the cities. Again we see that the average consumer in any major Australian city has a relatively high purchasing power compared with New Yorkers. Based on the average net salary in the city, consumers can afford up to 10% more than people in New York City. Perth residents have the highest purchasing power average in Australia, according to Numbeo.
Below you see how each Australian state compares against the purchasing power ‘baseline’ of 100 for New York.
Purchasing power of Australian cities vs New York (=100):
Perth 110.0
Darwin 109.4
Canberra 105.1
Sydney 104.5
Adelaide 104.2
Brisbane 103.8
Hobart 101.6
Gold Coast 101.2
So it’s very costly to live in Australian cities but we are not quite as expensive as New York, and our purchasing power is marginally higher.
The world in crisis
But all this doesn’t help the fact that we Aussies are feeling the pinch.
Speaking on the Numbeo data, Visual Capitalist says the world is experiencing a ‘cost of living crisis’ largely because of pent-up demand following the COVID-19 pandemic, coupled with supply chain issues and the Russia-Ukraine conflict. As we know, higher inflation results from too much money (demand) chasing a limited amount of goods (supply).
Increasing interest rates and effect on property
According to the World Economic Forum, the multi-decade highs in inflation in some countries have prompted many central banks to increase interest rates.
“This is intended to help bring inflation under control by reducing people’s purchasing power,” Jenna Ross says in her recent WEF article, “Interest rate rises are supposed to reduce demand by slowing down our spending which motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.”
One type of person among those forced to lower prices is the Australian property seller.
AMP Australia Senior Economist Diana Mousina told CNBC she anticipated a “peak to trough” fall in house prices between 15% and 20% in capital cities in 2023, and the size of that fall would be a “big hit” to households.
“For many decades in Australia, we’ve seen some small corrections, but that [15%-20%] will be quite a decent fall,” she told CNBC.
RBA predicts inflation will come down next year
In a recent press release Reserve Bank of Australia Governor Philip Lowe said inflation was forecast to peak later this year and then decline back towards the 2%–3% range next year.
“As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate,” he said. “Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services.”
If you’re considering purchasing or renting a house, make sure you download our free property report for that address. We have 12 million addresses in our database, with every report offering information on internet speeds, crime trends, bushfire and flood risks, investability scores and a whole lot more.
Photo by Johnson Wang on Unsplash