Housing Market: Sydney vs Melbourne

The rivalry between Australia’s east coast capitals seems to extend to every aspect of our lifestyle, from sport, to culture, and of course, liveability. Melbourne has been acclaimed for striking a balance between affordability and standard of living, being named the world’s most liveable city for seven years on end, while the steep Sydney housing market has made first home purchases almost impossible, and encouraged many young people to focus their search elsewhere. The housing market in Australia continues to be one of the driving factors in the ongoing debate between Sydney vs Melbourne.

That is not to say that the Melbourne market has not experienced growth. In fact, both capitals continue to record growth across the housing market in Australia, although to vastly different effect.

Steady vs Unsteady Markets

But, contrary to popular belief, not all growth is necessarily a good thing. Investors looks for stability when looking for their next solid portfolio opportunity, which is of course a long-term prospect. A fluctuating or temperamental market is an immediate red flag. When taking this approach to comparing Sydney vs Melbourne, particularly in light of the exponential Sydney boom, there is simply nowhere to go but down, leaving experts giving the harbour city a wide berth.

And indeed, that tipping point may be already beginning. Over the third quarter of 2017, housing in Australia rose by only 0.5%, which is the slowest rate since the second quarter of 2016. The worst-performing capital city was Sydney with only 0.2% growth recorded in the same period. Should this slowdown in Sydney be viewed as a relief for first home buyer hopefuls, or a warning sign to stay away?

Melbourne Still Ripe for Investment

This is the turning point in the Sydney vs Melbourne dilemma. Turning to Melbourne, we are able to see the result of a steadier growth over time, rather than a boom and bust trajectory. Over the past 12 months alone, both Sydney and Melbourne recorded double digit value growth. But while Sydney grew by only 0.2% in the last quarter, Melbourne grew by 2%—10 times the growth of its east coast rival. Even when all the markets in Australia are slowing, Melbourne is still coming out on top.

This is a stark contrast to Sydney’s recent 20% increase in a single year—a figure which is simply unsustainable. A steady increase in population in Melbourne, has meant that demand has continued to dominate over supply, despite increased construction, making the city resilient in the face of nation-wide slowed growth.

Amid the mess that the Sydney market finds itself in, buyers, owners, and experts alike are similarly doubtful of the way forward. Although the growth is slowing, there is still little hope for first home buyers. This slowing is only happening now after a period of five and a half years, leaving the market at a point still far beyond the long-term average.

Investors’ and First Home Buyers’ Delight

Melbourne remains in the sweet spot for housing in Australia, one of the few places where it is possible to enter the market as a first home buyer, and steady predicted growth also ensures that the purchase is a solid investment for the future. As such, it’s a hotspot for investors’ portfolio purchases as well as being a first home buyers’ ideal location to start a family.

Melbourne’s average house price hit $880,902 in the third quarter of 2017, whereas Sydney clocked in at a staggering $1,167,516. Many Sydney investors are recognising that they are sitting at the top of the housing market in Australia and looking at a long way down. If they spook and jump ship, putting their investment on the market, then we risk a serious oversupply as demand migrates interstate seeking more affordable housing.

First home buyers who aren’t able to commit to a house still have opportunity to purchase in the ideal Melbourne conditions, turning towards apartments and units. The apartment market broke the $500,000 mark for the first time in the last quarter, with a steady increase of 3.4%. As more and more first timers shift their focus away from houses, the unit and apartment market is growing more significantly, particularly in the outer suburbs. Experts agree that at the lower end of the housing market, there is always a scramble to get a foot in the door, meaning rising apartment and unit prices still offer a promising investment.