Feeling the pinch? Here's how you compare

How do you measure affordability? It seems logical to look at prices, but this only tells you half the story.

Prices have definitely increased. Prices are up 22 per cent nationally over the last 5 years - a whopping 27 per cent if you live in Western Australia or 24 per cent in Queensland.

For Canberra, prices have increased about 21 per cent, a bit below the national average but still the biggest increase in more than half a century.

Prices are obviously an important part of the affordability crisis. But they are only half the story. The other half is income.

If prices go up 21 per cent but your income also goes up 21 per cent, then affordability hasn't changed. This is what economists call the 'real wage': it's the wage you get in your paycheck each fortnight (your 'nominal wage') divided by prices.

Armed with this metric, we can see what the affordability challenge looks like across Australia. Turns out, it depends a lot on where you live, what you do, and where you work.

Start with the national picture.

Prices increased significantly from 2000 to 2020. But our nominal wages increased by more. The result was that real wages (and affordability) improved by about 15 per cent.

What happened after 2020 was a catastrophe for affordability.

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In the space of just three years, Australians lost two-thirds of all that growth in affordability; we lost 14 years' worth of real wage growth. Our affordability of goods and services was back to where it was in 2009.

Even if real wages return to their long-run growth trajectory (which the latest inflation data suggests is optimistic) Australians won't get back to the same level of affordability until almost 2040.

Australia has a big affordability problem. But the size of this problem depends on many factors, including where you work, your occupation, where you live, and the intersection of those things.

Start with where you work.

If you work in the public sector, I have bad news for you. The hit to your affordability has been worse than the private sector. Your real wages have fallen 10 per cent since 2020 compared to 7 per cent for the private sector. It will take at least 14 years to get this back.

Your specific occupation also makes a big difference.

Spare a thought for people who work in accommodation and food services and people who work in retail. While Australians have lost two-thirds of the growth in our real wages since 2000, these unfortunate people have lost all of their growth, and then some. Their real wages have gone backwards and are now lower than they were in 2000.

The other key variable is where you live.

The affordability crisis is biggest in the Northern Territory, followed by Western Australia and Queensland.

The Northern Territory has seen real wages crash by 10 per cent since 2020 - 8.2 per cent in Western Australia and 8.1 per cent in Queensland.

The big states fared a bit better. New South Wales saw affordability fall by 7 per cent while in Victoria it fell by 6 per cent.

Affordability in Canberra fell by 6.2 per cent - better than Sydney and marginally worse than Victoria. But this is where the intersectionality of these variables becomes important.

For Canberra as a whole, the fall in affordability might not be too bad relative to others. But if you're a public servant in Canberra, the drop in affordability jumps to 8.2 per cent.

Put differently, it will take Canberra's public servants 16 years to get back what they have lost in real wages.

When I combine where you work with where you live, it is public sector workers in the Northern Territory and Western Australia who have seen the biggest falls in affordability, with real wages falling 13 and 10 per cent, respectively.

It's grim. So, what can we do?

There are two ways to get real wages higher: you can push down prices or you can push up nominal wages. Given higher wages tend to cause higher prices (through increased spending), the priority is to get prices down.

Prices are up because demand is outstripping supply. The fastest and easiest ways to increase supply are to immediately abolish all tariffs and to automatically allow the importation of anything into Australia that has satisfied product standards in the EU and/or US.

These reforms would immediately reduce the prices of everything from consumer goods, pharmaceuticals and medical devices through to cars, electronics and construction materials for homes.

Other reforms - targeting out of control inflation in housing and health and withdrawing government demand from the economy by getting the Budget back in balance - will take more time.

But let's be clear: had we started these reforms after the 2022 election when economists were already sounding the alarm bells, we wouldn't still be dealing with an affordability crisis today.