Changes in Purchasing Power

Although Purchasing Power, the amount of goods and services a unit of currency can buy, has decreased due to inflation, many goods and services have become cheaper in terms of how many hours you have to work to buy them. We buy more stuff, better stuff, and spend fewer hours working to get them.

However, depending on where you live, the rising costs in housing, education, and healthcare can offset these gains. Housing affordability has gotten worse in urban developed nations, for example.

In the 1950s–1970s, a typical house in the US, UK, or Australia would cost 2–3× the median household income. Today, that figure is 6-10x income – even 12x+ in cities like London, Sydney, and San Francisco. Housing, which is one of the biggest and most important expenditures, is 3-5 times more unaffordable now.

Housing became less affordable for many reasons. More people moved into cities for work. Immigration wasn’t matched with commensurate housing development. Zoning restrictions (like banning apartments in a suburb of single-family homes) made it harder to develop property.

Since the 1980s, falling interest rates made mortgages cheaper, which pushed up property prices. Easier access to loans meant more buyers and higher competition.

People also increasingly sought housing as investment. Investors would buy properties to hold or rent. Foreign investment, Airbnb, and property hoarding have reduced housing availability.

Education affordability, especially at university level, has declined sharply over the past 50+ years in many countries, particularly in the United States, where since the 1970s, tuition has increased 10x while incomes only ~1.5x.

There are many reasons for this. The state funding per student has fallen over time in Australia, UK, and US. Public universities have gone from relying on public subsidies to student fees as means of funding.

University admin and marketing costs have increased. So has the demand for university degrees which means universities can charge more fees. However, wages for many degree-holders have stagnated, leading to a poor return on investment.

Consequently, the student debt has increased. In the U.S., total student debt is over $1.7 trillion. Many young adults delay buying homes, having children, or starting businesses due to debt. More jobs require degrees now even though they’re not strictly necessary.

Even though affordability of goods and services has increased, major commodities such as housing, education, and healthcare have gotten much less affordable.