Elon Musk’s new pay package from Tesla is worth $1 trillion.

Here’s what I imagine he said to the Tesla board when negotiating:  “I wanna be a trillionaire, so frickin’ bad. Buy all of the things I never had. I wanna be on the cover of Forbes magazine, smiling next to Oprah and the Queen” (millennials will get it, not too sure about the rest of you).

And in other news, house prices are up again. Let’s talk about why they’re so high.

Australian property prices went up again in October, marking the ninth month in a row of price increases. The median house price in Sydney, Brisbane, Adelaide, Perth, and Darwin hit new highs. 

Is this too high? How do we know? And what can we do to make houses less expensive?

One way to assess the affordability of houses is to compare the typical price of a house to the typical income for an Australian, and ask: “Can the average person earning an average wage afford a house?”. 

The answer to that question is no.

Here is a graph showing the ratio of the average house price to the annual average wage for the last 100 years (thank you AMP for sharing the data). 

Look at 1996, the ratio is about six. That means that the average house is six times as large as the average income. That’s on the upper limit of what we generally consider “affordable”. But it means you can probably still afford a decent mortgage and buy a home. 

Look at 2025. The ratio is about 14. Even if the average Australian saved all their income, with no spending at all, it would take 14 years to buy a home

Correct. We can also look at house prices versus the average person’s capacity to pay. Capacity to pay is a measure based on the average person’s borrowing capacity given average income, cost of living expenses, and banks’ willingness to lend to borrowers. 

And when you look at price vs capacity to pay, things are just as grim (thanks again, AMP, for the data).

We can see that during the 2000s was when the gap in capacity opened up, then it started gaping since COVID. 

Well the blue line is for the average person. It means that high income earners can still afford houses. 

But young people typically are not high income earners - that comes later in your career. So, home buyers are generally either older people, young people with help from older people, or young households who can pool their income. But everyone’s going to feel the pinch.

Supply supply supply! The government announced they’re planning to build 1.2 million new homes over the next five years, but they are running behind. 

Last week, policy think tank Grattan said a key bottleneck in housing supply is zoning regulations. They recommended changing zoning laws to allow for more high density housing (e.g., more apartments and townhouses) in cities and near train stations.

Last week, Tesla agreed to a $1 trillion pay package for Elon Musk, meaning he could become the world’s first trillionaire. But the package does not mean the company will pay him a $1 trillion salary. He needs to meet lots of conditions, and some of those conditions will be tricky to satisfy. Let’s break it down.

Good question. It’s important to note that Tesla did not agree to a $1 trillion salary - it’s a pay packet. 

A pay packet is a combination of different ways that a company can pay an employee. Usually the different forms of payment serve different purposes: they provide different kinds of incentives to keep you focussed on company performance. 

Here is what pay packets can include: 

No salary - just a lot of stock options with conditions and vesting periods. 

The pay packet says that if Elon meets all the conditions, Tesla will give him around 420 million shares. And, noting that the final condition is to bring the company to a value of $8.5 trillion, those shares he gets will be worth $1 trillion. 

Here’s how it’s structured: 

Maybe. 

Musk does have a great track record when it comes to building big companies, but an eight-fold increase is a tall order. There are also performance targets in there for Tesla products that haven’t even come to market yet, such as self-driving cars and taxis, and robots.

This titbit is niche, but bear with me because it was the best link I clicked on last week. 

Economists do our financial modelling in two different software languages: Stata and R. The users of Stata and R are arch rivals. Imagine Jeremiah vs Conrad (hello ‘The Summer I Turned Pretty’ fans), or Charli xcx vs Taylor Swift, but better.

I’m a proud R user. That means my teammates and I were delighted to see a new package drop last week called genzplyr. It’s the same coding, but it’s way more fun, because it uses Zillennial slang. Here’s an example of what some old R code looked like:

penguins %>%

Here’s what that code would look like now:

penguins %>%

I understand this will be hard to follow for most of you. But is there anyone out there who is as excited as me? Hit reply to this email!