Housing prices across Australia

16th Feb 2016By: Tim Lawless

Housing affordability is a topic that is being discussed more and more due to the substantial increase in home values at a time when household incomes are hardly moving. While there are many studies outlining affordability based on measures like dwelling price to income ratio’s, the proportion of household income it takes to service the average mortgage or the average deposit required to purchase the average home (to name a few), another interesting perspective is the notion of relative affordability across the major regions of Australia.

The relativity of home prices across Australia has changed remarkably over the past decade driven by substantially different economic conditions from region to region which has driven housing values at vastly different paces of growth.

To provide some context, over the past ten years, Melbourne dwelling values have doubled with growth of 101%. Sydney dwelling values have increased by 78% and Darwin home values are 75% higher. Every other capital city has seen dwelling values rise by less than 45% with Hobart showing the lowest decade gain at just 17%.

Based on January 2016 median dwelling prices, Sydney home prices are now 34% higher than Melbourne’s, 66% higher than Brisbane’s and 53% higher than Perth’s. In the more affordable capital cities, Sydney prices are 128% higher than prices in Hobart and 89% higher than what you will buy in Adelaide.

In dollar terms, Sydney dwelling prices were $198,000 higher than Melbourne’s in January this year, $271,000 higher than Perth prices and $310,000 higher than Brisbane prices.

Sydney has always held a pricing premium over other capital cities, but we haven’t seen the relativity in pricing compared with most other capitals this high since around 2003-2004 when the housing market was approaching the last stages of the previous boom conditions.

The pricing gap can only be partially explained by higher income levels in Sydney. Sydney residents do generally see higher household incomes, but the difference isn’t anywhere near the size of the gap in house prices. Based on the latest Household income and wealth survey from the Australian Bureau of Statistics, the gap in median gross household incomes was only 8.3% between Sydney and Melbourne, 6.9% between Sydney and Brisbane and Perth household incomes were, on average, 5.9% higher than Sydney’s.

The big question now is whether we will see some rebalancing in the relative level of pricing between the capital cities. The last time Sydney prices were so high compared with other capitals we saw housing prices in Sydney slip by just over 8% over 21 months between early 2004 through to December 2005, with values staging a nominal recovery 42 months after 2004 peak.