1:2 land to house rule is now 2:1

Back when my wife and I bought our first house package in Langford in a development called Ellison Park the hard rule was you should put a third of the value into the land and two thirds into the house. If you put anything more into the house then your house and land package was over capitalised.

And that is basically what everyone did—back then.

So for our first home and land we put about $10,000 into the land and $20,000 into the house. This was around 1978. This was the perfect 1:2 fit.

For our second home which we built in 1983 we put about $18,000 into the land and $30,000 into the house. Here we were a little under on the house cost, but basically still fitting the 1:2 rule.

For our third and current home the land was $80,000 and the house was $140,000. We built this around 1993. Again, a little under the 1:2 ratio.

So for all three of our homes we basically followed the 1:2 land to house cost ratio.

Just reading today’s Western Australian newspaper (Saturday, 22/9/2012) on page 23 there is an article about a couple who are sick of paying $420 per week rent and are making the leap into buying a house. They have bought themselves a block at the Yanchep Golf Estate for $200,000 and now they are looking for a house around $100,000 to build on it.

People with an instant eye for the maths will see what has happened here.

The land to house ration is now more like 2:1.

LandtoHouseRatio

It would seem that these days you spend half as much on the house as you do on the land.

I don’t know exactly when this huge change occurred but I suspect it was around 1995 or maybe a little closer to 2000.

BarryMark