Why housing affordability in major cities has barely improved despite falling home prices
A house in Sydney will still cost you double the price of a similar property in Adelaide – and even big falls in prices in the past year have done little to improve housing affordability in Australia’s most popular cities.
After years of historic highs, national dwelling values (an aggregated median of units and houses across the country) have fallen by 3.5 per cent in the 12 months from their peak in October 2017, according to CoreLogic data.
However, housing in Australia’s two most populous cities, Sydney and Melbourne, remains substantially more expensive than in other capital cities.
This is despite the two major cities leading national price declines with falls of 7.4 per cent and 4.7 per cent respectively in the past year.
“The reality is that there has been very little improvement in housing affordability,” CoreLogic analyst Cameron Kusher said.
“Sydney and Melbourne, in particular, are a little cheaper, but remain substantially more expensive than other capital cities.”
A detached house in Sydney – Australia’s most expensive capital city with a median house price of $960,344 – costs about twice as much as a similar home in the nation’s cheapest capital, Adelaide (median price $467,180).
Melbourne remains the nation’s second most expensive city, with a median price of $786,386, more than 25 per cent above the national median of $559,797.
The lack of improvement in housing affordability in Sydney and Melbourne is largely attributed to the fact recent price falls are modest compared to the historic booms that helped Sydney home prices soar by 64.4 per cent in the five years to January 2018, and Melbourne prices by 56.4 per cent.
“Any significant reduction in housing costs back to historic premiums would take a long period of declines or flat housing market conditions,” Mr Kusher said.
House and unit values are likely to continue falling in Sydney and Melbourne in coming months, according to Mr Kusher. Some property market commentators predict peak-to-trough falls of more than 20 per cent in Sydney and Melbourne through to 2021.
Despite the downturn, the “housing premium” buyers must pay in Sydney and Melbourne is expected to remain.
“It seems unlikely, given the economic strength and populations of Sydney and Melbourne, that the value premium of housing in these two cities will revert to historical levels,” Mr Kusher said.
The ‘Sydney premium’
Sydney has “consistently been the most expensive” capital city housing market in Australia, according to CoreLogic.
Despite Sydney values falling by 9.3 per cent since the market peaked mid-last year, the “value gap” between prices in the harbour city and the rest of the nation, with the exception of Melbourne, remains at its widest in about 15 years, according to Mr Kusher.
Relative to other capital cities the “Sydney premium” is: 23 per cent for Melbourne, 76 per cent for Brisbane, 105 per cent for Adelaide, 100 per cent for Perth, 101 per cent for Hobart, 88 per cent for Darwin, and 44 per cent for Canberra.
Sydney hasn’t always been the nation’s most expensive market.
Perth – now one of the nation’s most beleaguered housing markets – once boasted Australia’s highest prices, when home values soared by a staggering 40 per cent annually at the height of the resources boom in 2006.
In Melbourne, the value gap compared to other capital cities (except Sydney) is “the widest it has ever been”.
“Historically, the value of houses in Melbourne have been quite similar to those in Brisbane and Perth. However, this is no longer the case,” Mr Kusher said.