Living in the lucky country comes at a cost

Both Sydney and Melbourne now have the dubious honour as two of the top 10 most expensive cities in which to live according to the Worldwide Cost of Living 2011 Survey, conducted by the Economist magazine’s Intelligence Unit.

And while some media outlets are having a field day with the negative implications such as the rising cost of living, more families struggling financially, households increasingly experiencing mortgage stress and so on; others are criticizing the magazine suggesting the Economist Intelligence Unit is an oxymoron and should be renamed.

I know I’ve often disagreed with some of their assessments of Australian property, but I am happy to agree with a different report, their Global Liveability Survey, which anointed Melbourne as the world’s most liveable city.

One the best thing about winning the top spot is that Sydney must be envious, only ranking sixth, with Perth and Adelaide ranking joint eighth and Brisbane lagging the other Australian capitals ranking 21st.

Back to being amongst the most expensive country to live in… firstly let’s understand what they were measuring.

To measure the cost of living the EIU looked at “point of sale” prices for more than 160 everyday consumer items in 140 major cities around the world, and then ranked each city according to its cost of living.

According to this study, Sydney and Melbourne ranked sixth and seventh as the most expensive places to live, while Perth and Brisbane just failed to make top 10 status, coming in at 13th and 14th place. This is in stark contrast to a decade ago, when Sydney and Melbourne were ranked as the 71st and 80th most expensive cities, and Perth was in the 91st position and Brisbane was 93rd.

There are two major reasons why a city’s cost-of-living index will change over time: exchange rate movements and price movement.

The report explains that the remarkable rise in the cost of living in Australian cities over the last decade, came at a period in which the value of the Australian dollar has moved from around 50 US cents to passing parity with the US dollar.

Essentially, if the local currency strengthens or inflation pushes up the price of goods increase (both of which have occurred here since over the last decade), the relative cost of living will also rise.

There’s no sugar coating it… the cost of living and property prices are expensive in Australia, but for a good reason when you consider our general economic wealth, our ever expanding population and all the new development struggling to keep up with the escalating demand.

However, rather than focusing on the prospect of paying more for the Australian way of life (which, let’s face it, won’t change the price of our groceries or real estate), perhaps we should take a different perspective.

You probably believe in the old adage – you get what you pay for – right?

So doesn’t it go without saying that if you want to live in what most people perceive as “the lucky country”, then you’re going to have to be prepared to pay for living in the best place on the planet.

In other words, we need to be prepared to pay more for our higher standard of living comes at a premium. For the privilege of enjoying our relatively clean environment, low unemployment, stable economy and larger homes clustered around major coastal cities.

Now, while we might feel a little hard done by and, on occasions, whine about the significant increase in house prices, rents and our grocery bills, consider the residents of those countries that came in last.

Would you really like to reside in the likes of Pakistan’s Karachi, the cheapest place to live and work where the cost of living is less than one-third of that of Tokyo? Or what about the infamous Indian cities of Mumbai and New Delhi, where poverty is rife and the rate of homelessness is through the roof?

Rounding out the bottom 10 on the cost of living index are cities dotted throughout the troubled Middle East and North Africa, with the low cost of living in these parts driven by a mix of weakened currencies, low levels of development and, in some cases, price controls and subsidies in staple goods.

For me, there is no question that we are indeed a very lucky country – many would even suggest we are “spoilt”. After all, we enjoy a glut of wide open spaces, comparatively clean beaches, jobs for those who want to work, homes with all of the modern conveniences we’ve come to expect, excellent investment opportunities there for the taking and a world leading economy.

At the end of the day, I guess you really do get what you pay for.

Oh , one last thought…

If we are widely recognised as the most liveable country in what is fast becoming an increasingly inhospitable world, would-be residents will be beating a path to our door and we’ll end up with a big Australia after all.

Where are we going to put all those people?

Don’t get me wrong – I think we need a growing population to support our economy and replace our retiring Baby Boomer workforce. In the words of a famous past Prime Minister – we must populate or perish.

In his recent column, Christopher Joye explained that Australia will likely have to absorb 2.3 million additional households over the next 15 years alone. BIS Shrapnel estimates that this translates into a new home building requirement of about three million properties once you account for demolitions and the historical share of unoccupied homes (eg., holiday houses, etc).

There is no doubt that this substantial increase in population will bring with it many social, political, infrastructure and environmental concerns.

The fact is that our politicians must make some hard decisions and start investing in improving our infrastructure so we can have the sustainable growth that will ensure we remain the lucky country.

Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia’s leading experts in wealth creation through property. He also writes the Property Investment Update blog.