Salaries are rising, affordability is falling. How is that?

Author: Miodrag Šajatović

October 10, 2024

pad rast / Image by: foto

Affordability. A word that is increasingly heard in the Croatian public space. It has been mentioned so many times that it can seriously compete for the word of the year. It started with questioning the affordability of buying an apartment. Then it was analyzed how much families can afford to vacation on the Adriatic. With the arrival of autumn, the topic of the affordability of student accommodation in dormitories arises, and whether those who do not get that accommodation can afford decent renting.

Not only in Croatia, discussions are ongoing about whether the indicator of the level and growth of gross domestic product is good enough to indicate what is happening in the economy of individuals and families. According to all indications, economic scientists would be useful if they devised an affordability index. For now, the Economic Institute, Zagreb, publishes an affordability index for buying an apartment. But a measure is needed that would also include the affordability of goods in stores, kindergartens, full-day school attendance, health services, renting, buying the first property, affordability of jobs, vacations/winter holidays, and accommodation in nursing homes. An approach ‘from cradle to grave’.

Romantic enthusiasm

If there were responsibility among politicians, they would include in their election programs how affordable the mentioned needs are at that moment and what affordability they promise at the end of their term.

One of the main motives for most to leave socialism in the 1990s and embrace the transition to capitalism was frustration with the unaffordability of goods that were abundant in the West, while we faced shortages. The romantic enthusiasm stemmed from the idea that a more efficient capitalism would deliver to most families incomes that would allow them to afford more of what they desired. Little attention was paid to the fine print, that in the new system, the individual takes responsibility for themselves and their family.

After thirty years, it must be acknowledged that the shelves in stores are full of products. Choices can only be made that way. It should also be acknowledged that the current phase of capitalism, based on private entrepreneurial initiative, but also supported by global money printing and demographic human deflation, has made jobs quite affordable. Unlike socialism.

When it comes to other key indicators of affordability, things are not so black and white. Generally, the affordability of housing in socialism was greater than today. Many social apartments were built. The savings achieved were often used to start building, mostly illegal, weekend houses on the Adriatic. Those who could not get a social apartment (the lists were rigged even then) managed to get a loan to start building a family house.

Inflation reduced those housing loans (there was no currency clause) to laughably low repayments after a few years. Today, despite all the salary increases, the affordability of buying an apartment or building a house is increasingly questionable. Soon, employers, like in the Austro-Hungarian era, will build workers’ settlements next to their factories.

The sea is getting further away

An interesting comparison would be the affordability of vacationing on the Adriatic thirty to forty years ago and today. Eurostat says that more than a third of families today cannot afford a day of vacation with overnight stay. Surveys show that seventy percent of families did not go to the sea this year. Once, it was easy to go to union resorts. Health care is a special story. State health care is rapidly collapsing. The affordability of health services funded by citizens’ taxes is decreasing. The shortage of services in a reasonable time is becoming more pronounced. Of course, private health care has developed, but with the level of income, salaries, or pensions, affordability is low for most taxpayers.

And to round off the story about affordability from the first to the third age, there is accommodation in nursing homes. State homes, almost exclusively built during socialism, are still somewhat affordable in price, but unaffordable due to a lack of capacity. Few can afford private ones with their pensions. Children must step in. But if part of the salary goes for the accommodation of parents, so much is lacking as an incentive for more children in the family. Thus, we come to demographics.

It shows that capitalism has many faces. Salaries are rising, affordability is falling. Without serious monitoring of affordability indicators and publicly defined goals regarding the number of beds in student and elderly homes, frustration when GDP growth data is published will continue to rise.