Why is Sydney's housing market so expensive?: Cameron Kusher

Why is Sydney's housing market so expensive?: Cameron Kusher
Why is Sydney's housing market so expensive?: Cameron Kusher

Why is Sydney's housing market so expensive? Sometimes when people try to answer this question, they point out that more expensive property prices are offset by higher wages in Sydney; and this argument is, at least to some extent, true.  Sydney wages are higher, but not to the same extent as property prices compared with other cities.  Based on data released by the Australian Bureau of Statistics last week, the gap between Sydney and Melbourne wages is only around $5,000 (9.2%) per annum, Brisbane is fairly similar, with wages being $5,100 (9.4%) lower per annum.  Perth wages are roughly on par with Sydney’s, showing a $490 (0.9%) difference.  The largest gap between Sydney wages and the other capital cities is apparent in Hobart, where the difference is a more significant $10,500 (19.3%) per annum.

The data released by the ABS is unfortunately quite lagging, being current to June 2010.  To compare apples with apples, we have provided median dwelling prices from June 2010 to highlight what might be described as some inequity of dwelling prices when we compare Sydney incomes with dwelling prices.

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Looking at the differences between average wages and median dwelling prices, the only capital city where the comparison of incomes and dwelling prices is roughly equitable is in Melbourne.  Melbourne dwelling prices and incomes are roughly 9% lower than Sydney’s.  A more up-to-date look at current dwelling prices shows that in October this year, Melbourne’s median dwelling price is now 11% lower than Sydney’s.

Looking at Australia’s third largest city, Brisbane, shows that incomes are 9% lower than Sydney’s, but dwelling prices are 15% lower.  Since June 2010 the gap between Brisbane and Sydney dwelling prices has widened to nearly 25%.

Adelaide dwelling prices are 25% lower than Sydney’s, while wages are tracking 17% lower.  Based on median prices to October 2012, the gap between Sydney dwelling prices and Adelaide’s has widened to 30%.

Average wages/salaries across Perth are only 1% lower than Sydney’s, but median dwelling prices are 7.2% lower.  The October median dwelling price data now shows Perth dwellings to be 13% more affordable than Sydney’s.

The gap between Sydney and Hobart wages and prices is the largest of any city, with Hobart wages averaging 19% lower than Sydney’s, however, dwelling prices were getting close to being 40% lower than Sydney’s back in June 2010.   More recent October data shows the median dwelling price in Hobart to be 43% lower than Sydney’s.

The average wage in Darwin is only 2% lower than Sydney’s, however, median dwelling prices are 10.5% lower.  Darwin is one of the only cities were the gap between median dwelling prices has narrowed since 2010 (a reflection of the recently strong growth conditions in Darwin), with the Darwin median dwelling price recorded at 8.3% lower than Sydney’s median dwelling price in October 2012.

Finally, in Canberra, the average wage/salary is 6% higher than Sydney’s, making Canberra Australia’s highest paid capital city.   While incomes are higher than Sydney’s, dwelling prices were 13% lower than Sydney’s back in June 2010.  Based on the October median price data, Canberra dwellings are now 7.5% more affordable than Sydney’s.

The question still remains, though, why are Sydney prices so much more expensive than other capital cities?  Like any pricing-related question, the answer often comes back to the relationship between demand and supply.  From a demand perspective, Sydney has the largest population of all the capital cities and the second highest level of population growth (based on raw numbers rather than percentage change).  New South Wales also attracts the largest number of overseas migrants.

From a supply perspective, the inefficiencies surrounding land release and development across New South Wales has resulted in an insufficient level of new dwelling construction, creating a housing market which is undersupplied.  The undersupply of housing tends to place some upwards pressure on prices.

Other reasons, apart from the higher incomes argument, likely come down to a handful of other factors.

  • Geographically, development and urban expansion in Sydney is curtailed by the large tracts of national park and the large number of waterways located across the Sydney metro region
  • Sydney is one of Australia’s most mature housing markets.  The long-established inner city and coastal areas tend to push the overall median prices up.  In fact, the outer-western and northern fringes of the Sydney metro region provide some of the most affordable capital city housing markets across the major capitals.
  • Another factor is the high cost of vacant land across Sydney, which is much higher than any other capital city.

Cameron Kusher is senior research analyst at RP Data.


    Cameron Kusher

    Cameron Kusher

    Cameron Kusher is senior research analyst at CoreLogic RP Data.

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