Is the American Dream Alive in Australia? Part IV
Welcome back, dear reader, to the fourth part of my ongoing series comparing life in the US and Australia. Barring a few snags along the way, I’ve largely made a compelling case for life in Australia. But as we all know, everything has a cost; so what is the price tag attached to the Aussie lifestyle? In short, less than you think. Buckle up, as this is going to be the most math heavy article of the series.
A Data-Driven Look at Australian Housing Costs
Just like weather and public transit, affordability is another sphere in which you will hear Australians regularly air their grievances. Firstly, I want to make clear that these complaints are absolutely valid. It’s an indisputable fact that Australia is quickly getting more expensive to live in; the data proves it. However, like inflation, soaring house prices are a global crisis that is affecting urban areas in nearly every country of the world. Australia is no doubt in the same turbulent storm, but Aussie cities are faring it better than most of their peers, even in the major metropolises.
Let’s look at what the data has to show. Sydney is Australia’s most expensive city (and understandably so). Since 2009, the average price of a Sydney condo has increased +188%. Comparatively, San Francisco is the most expensive city in the US; during the same period SF condo prices increased by +209%. From this we can gauge that — at least for first time buyers interested in urban living — even the most expensive real estate market in Australia is getting more expensive more slowly than its American counterpart. Affordability has many more components, let’s take a look at mortgage costs versus the average income in those same cities. The most succinct way to summarize this is to calculate what percentage of the median income in an area it would take to afford the average mortgage payment for a typical home in the same area: a mortgage burden rate. Sydney is currently at the highest rate Australia has ever seen at 69%.
If it were in the US, it would make Sydney the 4th most expensive metro. By contrast, Melbourne wouldn’t even crack the top 15 by this metric, and it’s an even brighter outlook for any other sizable Australian city.
This makes Sydney similar in price to New York, but comparatively cheaper than Miami and LA, both of which boast mortgage burden rates of 81%.
Quantifying Chill: Unpacking the Power of Australian PTO
I find the Sydney vs Miami and LA comparison extremely apt, all 3 have great weather, gorgeous beaches, and are economic and cultural centers. It’s fascinating to me that Sydney wins out here not only in affordability, but also in all of the other benefits we’ve previously discussed in depth, such as transportation and quality of life. Yet there is another hidden benefit to Aussie living that we can quantify, it’s their number of working days.
This is the amount of time one trades in to have access to their lifestyle. It’s a combination of two numbers, paid time off (PTO) that your employer grants you every year, and also paid holidays that the government grants you. In total, I’m going to refer to this as Non-Working Days (NWDs): the weekdays each year you are expected to be out of office, yet still collect a paycheck. America is notorious for having the worst time off policies in the developed world; it’s one of the few countries without any legislated PTO at all. In reality, just because there is no legislated minimum, doesn’t mean that Americans get no time off. American PTO packages range dramatically by company, industry, and even seniority. So for the purposes of a fair comparison, I will use national averages across all industries, where the typical American is granted 11 PTO days per year. Fun fact, this is 5 days less than the average Chinese worker. Similarly, for the second half of this equation, American companies vary dramatically in which public holidays they observe or not, but it is always more than zero. The national average here is 7 paid holidays per year. This totals to 18 NWDs, a grim situation compared to Australia, where workers are guaranteed 28 luxurious NWDs by law.
So even if you found an Australian and an American who made the same money and had the same bills, the Australian would be working 2 full business weeks less per year to achieve the same standard of living.
This is not just an academic difference either, as the vast majority of both Americans and Australians exchange their time for income. An enterprising Australian, who really wanted to increase their income, has 10 more days per year which they could use to do so — days the American has already committed. That’s 10 days per year the Australian could be freelancing, working on a side hustle, or even doing low-barrier-to-entry gig work, such as Uber. Understandably, not every Australian would make this tradeoff and may simply enjoy their time off; the point is the American does not have the same luxury. We also have an easy way to value this extra time, so it changes our mortgage burden calculation a bit. If the Australian was working as many days in the year as the American, their income increases by 4% (10 / 260 total weekdays in the year, arguably even more for hourly workers given public holiday rates), which would have the impact of reducing the share of that income which goes to housing. In either case, having 56% more time off than their American counterparts is nothing to brush off. This is the kind of time that can pay huge dividends over the course of one’s life.
I’m purposefully sidestepping a relevant and valid discussion around the likelihood that those PTO days will actually be used or not. While there is usage data out there, I find that it muddies the waters, as it’s a highly individual metric. Even people within the same company often vary dramatically in their usage rates, which are strongly weighted by one’s goals and preferences. While some appreciate the freedom, relaxation, and personal time; others prefer to cash some of it in when departing, whether by desire or financial need. Additionally, this metric is also impacted by company and national (sometimes even regional) culture. Some might fear diminished promotion prospects for using too many of their PTO days, others have managers who refuse to approve requests above a certain amount, while more still might be so understaffed they simply have no opportunity to reasonably take their time. The lucky ones may have leadership who actively advocate for time off and foster a pro mental health environment, including leading by example. Having not had the experience of working for an Australian company during my time down under, I can’t speak to these trends beyond simply reading the statistics and conjecturing about what drives them. Today I’m sticking solely to the math, but acknowledge this is an equally critical component to determine one’s fair time-to-income exchange rate.
Australian Advantage? My Eye-Opening Look at Housing and Incomes
Let’s return to housing for a brief moment and place the mortgage burden metric into the proper context. Aside from a place to live in, the property appreciation stat I mentioned earlier is one major driver for a desire to buy a house. For the average American, home equity accounts for nearly 29% of wealth, nearly as much as their retirement accounts (at 34%). The retrospective is clear, over 70% of seniors today admit their home is their largest asset and 75% admit that buying their home was their best financial decision. This is to say that home ownership has historically been a path to generational wealth. Unfortunately, in recent years the cost of ownership has far exceeded the cost to rent in the US, locking the majority out of this wealth building opportunity.
Today, there are only 4 metro areas in the US where it is cheaper to buy than it is to rent; and on average it is 81% more expensive to buy in America than to continue renting. Looking at the OECD’s Housing-Price-to-Rent-Ratios, Australia fares little better, with both countries coming within a five points of each other in line with the OECD average. Unfortunately, the housing woes of our generation are global. However, here again the lower mortgage burden metric (referred to as “Housing-Price-to-Income” in the OECD report) is of note.
Taken at a national level, Australia’s [housing price to income] ratio is 8% better than America’s and better aligned to the OECD average. Meaning that the average Aussie who does buy, will be significantly less burdened by that decision than their American peers.
Another way to say that is Aussies are less likely to be “house poor” than the many developed countries — continuing to have the left over funds to enjoy their lives after the mortgage payment clears. Remember this point when we discuss lifestyles later on in the article.
Phew, let’s take a quick break from the math. Quantitatively, all of this is compelling, but what made an equally powerful impression on me was actually living it.
Seeing prices advertised for units in the luxury apartment building down the street and witnessing a mortgage calculator produce monthly payments that were less than my rent… was eye opening.
Meeting other American, Canadian, and even British expats that had settled (or were planning on settling) in Australia, simply because it offered a standard of living previously unavailable to them… was eye opening.
Talking with expats from Taiwan, China, Korea, and Japan who were leaving their old lives behind to seek a healthier work-life balance… was eye opening.
Finally, meeting Aussies in my age range, with typical jobs, who could afford to buy modern condos in nicer neighborhoods than I had lived in back home (entirely on their own I might add)… well that was nothing short of inspiring.
Comparing Coasts & Costs: Why Luxury is Easier Down Under
Let’s get down to brass tacks then; what do I mean when I say the value of Australia is above and beyond what you encounter in America?
Let’s start with a more luxurious example; let’s say I wanted to live up the bachelor lifestyle with a spacious one bed, one bath, condo in a very desirable part of the city. Park Quarter in Melbourne comes to mind. (Seemingly a good deal, the unit has already been snatched up at the time of this publishing). This condo building is down the street from the American Consulate, so I actually got to see the area in person as I was replacing my lost passport — It’s simply beautiful.
A mere 12 minute tram ride from the heart of Melbourne, nestled between two gorgeous parks, one of which contains the Shrine of Remembrance — a stunning heritage building which offers spectacular views of the city. You’re also within a 30 minute walk of from both South Melbourne Market and Prahran Market, which means ample opportunities for fresh farm-to-table food, and also a great place to meet people and hang out. Did I mention easy beach access during the summers? The condo building itself is still under construction as of this writing, but the website gives you a good idea of what to expect: floor to ceiling windows, designer lighting, stone countertops, and ultra-modern construction. If this condo was in a major American city with the same type of construction and similar amenities, we’re easily talking $800K — $1 Million USD range. The unit I was describing was on sale for $375K USD and the expected mortgage payment for this condo would be $1,800 USD per month. For context, I paid roughly this much to share a (modern but modest) 2 bedroom apartment in Oakland, with no amenities, in an area where I would hear gunshots all too often.
When looking at a comparable price point, the only properties I could find in San Francisco were half the size, studio condos with much more modest interiors. This condo in the heart of SF was the best deal I could find, while the property was quite close to downtown and had ample food and entertainment options nearby, beach and park access was more than twice the distance, and the infamous open air drug markets of The Tenderloin were mere blocks away. Even though the total cost of the properties are similar, the monthly payment of the SF property was over $3K USD. $1K of which was due to SF property taxes and the HOA fee. These costs aren’t applicable to our Melbourne property as there are no property taxes in Victoria for your primary residence and even the highest strata rate in Melbourne (Aussie equivalent of an HOA) tops out at $200 USD per month.
In summary, a modest studio apartment with little amenities is $1K USD more per month in San Francisco than a luxury condo twice its size in Melbourne, with far superior neighborhood amenities. That is Australian value.
The luxury one bedroom may seem like a little much, but that’s the entire point of the comparison, it actually gets more absurd when you look at mid range properties. For instance, looking only slightly further out in Melbourne, you can even get a modern 2 bedroom apartment with a parking space at the same price point. In exchange for a slightly longer commute time (of 25 minutes) to the CBD, the nearby park is not quite as jaw dropping, and being further still from the beach. However, the local neighborhood (which I can personally attest is both lovely and vibrant) has been named as the 6th coolest in the entire world.
East Brunswick ranked higher than top neighborhoods in the US, including NOLA’s Mid City, LA’s Arts District, and Chicago’s Hyde Park. A mortgage on a similar condo in LA’s Arts district would cost you more than double.
$5K USD per month to be specific — and you guessed it — $1300 of which goes directly to property taxes and HOA fees. It’s a night and day difference.
A 12% Pay Raise (Sort Of): Australia’s “Super” Power
We’ve talked a lot about the cost side of the equation so far, so I’m going to shift gears now to talk about incomes. Australia is already world renown for its high minimum wage ($23.23 AUD nationally at the time of this writing) and it’s easy enough to look up salaries for your specific skill set, so instead I’m going to focus a bit more on an underrated aspect of compensation in Australia: Superannuation.
Superannuation (or just “Super” for short) is the Australian version of a 401-K, but far superior to its American cousin. In the US, 401-K’s are optional, in some cases an employer may give you a contribution match, capped at a certain amount. The cap is typically between 3% — 6% of your salary, though the most generous match I’ve personally witnessed was around 4.8%. This match concept allows a US employee to contribute 3% — 6% of their salary (before taxes) to an investment account, the employer will then add a matching contribution of the same amount, essentially doubling the amount of principal going into the account. The matching contributions always need to be vested into, which means if an employee leaves the company before a certain time, they forfeit the match. Without getting too in the weeds, it’s common that leaving within one year means you lose your entire match, and often you need to stay between 4–6 years at a company to receive your full match. In effect, 401-K’s are often used as a type of “golden handcuffs” for employees. That is when an employee is lucky enough to be able to afford to take advantage of these schemes to begin with. Often, low salary or hourly workers living paycheck to paycheck cannot afford to give up any percentage of their salary today, even if it means a guaranteed return when they are 55 or older.
The Australian Super account has none of these drawbacks.
Unlike the 401-K, the Australian Super is mandatory for all employers. It’s NOT a match either, but a guaranteed, immediately vested, amount that your employer has to contribute to your retirement account on your behalf, in addition to your agreed-upon wages.
That rate is set to rise to 12% of your gross wages (including bonuses, etc) as of 2025 and is as high as 17% for university employees. Without a vesting period, that money is legally yours with every paycheck. This holds true for hourly and salaried employees, and even employees that are not Australian residents (though there is a 65% tax on withdrawals after you leave the country). This may seem like a deal that is too good to be true from an American perspective, it certainly struck me that way at first, but I (and any Aussie you speak with) will assure you it’s exactly as good as it sounds. Super is yet another reason that Australian salaries are not directly comparable to those in the US, a 12% boost must be added to the Australian one before conversion, it’s a significant enough piece of compensation that you’re not making an apples-to-apples comparison without it.
Meet the Thriving Australian Middle Class
Finally, I want to move away from math entirely and give a few qualitative examples for income and lifestyles in Australia. These are real people I got to know during my year abroad, whose lifestyles truly illustrate the thriving Australian middle class. Their names have been changed for privacy.
Let’s start with Bronte, she lives in Sydney, loves the beach and the outdoors. She takes every opportunity to hike and swim on the weekends. During the week, she commutes to the CBD as she works for the government in a finance capacity. While she aspires to take on more of a managerial and leadership role, she’s happy being an individual contributor within her team, of which she is a senior member. Bronte is able to balance both her work and personal life; her salary alone is enough to comfortably own a 2 bedroom apartment without needing a roommate. Her apartment is within 30 minutes of both her office and her favorite beach; public transit in the area is frequent, clean, and safe. She doesn’t feel the need to own a car to do all the things she loves.
Next is Oliver, he lives in Melbourne and enjoys the city life, likes to grab drinks with his mates and can afford to be generous. Oliver comes from a traditional family and was encouraged to pursue a career in the medical field; after graduating university he started working as an Osteopath. While his work was fulfilling, the hours really wore him down. Oliver decided to change careers and went to trade school instead, learning to become an Electrician (or “sparky” as they’re commonly referred to down under). He’s now much happier with his work, his hours have improved, and he even makes better pay than at his old job. As an Australian tradie, his salary is enough for him to own a typical car in the city and qualifies him for a mortgage in the Melbourne suburbs.
Would Bronte and Oliver’s counterparts living in big American cities have the same lifestyles with the job they hold? I highly doubt it.
The TL;DR
- Increasingly unaffordable housing is a global crisis for this generation; however, Australia is faring better than other developed countries.
- Aussies get some of the most generous time off packages outside of Europe, along with some of the highest wages in the OECD.
- Aussies that choose to buy are less likely to be “house-poor” than many developed countries.
- Aussie urbanites enjoy world class neighborhoods and luxury buildings for half the price that Americans are used to paying.
- Aussies get a guaranteed 12% annual retirement contribution, funded by their employer, in addition to their wages.
- A typical salary in Australia is enough to not only comfortably live on one’s own, but in desirable locations well connected to public transit.
