Is Australia becoming too expensive to live in?
Sydney and Melbourne in the top 10 most expensive cities in the world
The latest Demographia International Housing Affordability Survey, which ranks affordability in cities with a population over one million, highlighted Sydney as the world's second-least-affordable city behind Hong Kong, with Melbourne following at a precarious number six on the same list.
The study, which covers 406 metropolitan markets in nine countries − Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States − bases its ranking on the 'multiple mean', the median house price divided by the median household income.
"Of course Sydney is on the list, and why wouldn't it be," says 30-year-old Sydney oral health therapist Maria Lucas.
"New South Wales is responsible for 54 per cent of Australia's economy; it's the powerhouse driving the country and demand will continue to drive our prices up, yet we all want to live here. Just look at the population growth. Sydney is an addiction. It has an energy surrounding each beautiful waterside location and inner-city sanctuary, but housing is extremely expensive," she says.
Taking into consideration the first survey in 2004, when Sydney's median multiple was 7.6, Sydney's 12.2 median multiple in the last two years has risen 60 per cent since, representing the poorest housing affordability ever recorded by the survey outside Hong Kong. The UBS Global Real Estate Bubble Index rates Sydney as having the world's fourth-worst housing bubble risk. According to the findings, and consistent with the experience in other overly-expensive housing markets, Sydney is experiencing substantial domestic out-migration.
Overall, Australia's 54 housing markets have an unaffordable median multiple of 5.5. Melbourne has a median multiple of 9.5.
"My wife and I arrived in Melbourne on a student visa in January 2014 and for the first six months, looking for a place to stay was probably the hardest and most stressful thing," says warehouse worker Nikos Pagonis.
"I think that prices are crazy expensive and are in no way proportioned with wages. Houses are already above the $350k mark up here in South Morang and Epping and Mernda, which is pretty much dead man's land. I wouldn't even dare to think how expensive the inner-city or seaside suburbs would be.
"Melbourne is fine if you have a bucketload of cash and your weekends free to really enjoy the city," he says.
Going down the list, Adelaide, with a severely unaffordable 6.6 median (16), Brisbane (18) and Perth (20) all rank in the top 20 least affordable cities, leaving New York and London behind and listing Australia's major problem as its urban containment policies.
"I don't believe that Adelaide is considered one of the most unaffordable cities in the world. We have significant parcels of already zoned or deferred urban land within our growth boundary to accommodate 30-plus years of greenfield growth, when talking at current rates. So there can be little argument on that point in Adelaide's short to medium- term future of supply," says Steve Maras, group managing director and CEO of Maras Group and state division president (SA) of the Property Council of Australia.
Admittedly, unaffordable housing occurs almost everywhere and usually is caused by the same factor − housing supply restrictions.
"There is no doubt that Melbourne, and for that matter Sydney, have shown significant growth in the last two to three years, but it is often forgotten that Sydney remained relatively flat for many years in the early 2000s and has played a bit of catch-up these past five years" says Alex Pyrlis, director of Placeplan Property Services, a commercial real estate services and advisory firm based in Melbourne.
"Melbourne and Sydney are also now very much cities with international investor appeal, and this has pushed prices up at rates greater than other parts of the country. For example, the issue of affordability may not be as pronounced in regional Australia or even say Perth, where the overall median value has dropped in the past 12-24 months," he explains.
Demographia's director, Oliver Hartwich, claims that citizens should not accept extreme price levels in the housing markets.
"High house prices are not a sign of a city's success but a sign of failure to deliver the housing that its citizens need," he says in the report.
"Germany is probably the country with the most boring housing market in the world. It is a place where nothing ever happens (at least as far as housing is concerned). German house prices remain stable, and if it had not been for the euro crisis and negative interest rates, the Germans would probably still be able to buy houses for the same prices in real terms that they paid 20 or 30 years ago.
"The story for other countries like Australia, New Zealand, the UK and large parts of the US is a different one. There, house prices have gone through the (now unaffordable) roof," explains Hartwich, claiming that there is a need to tackle housing affordability urgently because the effects of unaffordable housing on society are becoming more visible by the day, hitting those on low incomes the hardest.
"Thus in our work on different measures of poverty and inequality, we have argued that the best way to tackle both issues would be to make housing more affordable."
Sydney-based Greek Australian director of NG Farah Real Estate Coogee, Theo Karangis, feels that irrespective of the high prices, the housing prices will continue to grow simply because supply continues to be outweighed by demand, something extremely evident in the inner ring suburbs 7-10 km from the Sydney CBD.
"The average 'free-standing' house price in Sydney is over $1 million and the main factors driving our robust market are the interest rates being at a record low of 1.5 per cent, the yearly population growth as well as the infrastructure projects that continue to consolidate value in the market and attract international interest for large investments."
As stated in the report, every year, best cities and most liveable cities lists are produced by various organisations. Aimed at the high end of the housing market, these surveys virtually never evaluate housing affordability, with the findings often being mischaracterised as relevant to the majority of households. In fact, a city cannot be liveable, nor can it be a best city to middle-income households that cannot afford to live there. Households need adequate housing. The 'best cities' for housing affordability are often better on middle-income outcomes than the high-end best cities that attract media attention.
"Of course, if you are an investment banker, a media personality or a sports star, you will always be able to live a decent life, no matter how expensive your city is. And if you are within this group, you will also benefit most from the amenities that global cities provide. If, however, you are a teacher, nurse or shop assistant, your experience of city life would be very different. You would then have to put up with all the downsides of extreme price levels without being able to participate in metropolitan life. But is this the kind of society we want to live in? And isn't this kind of social polarisation exactly the breeding ground for populism and resentment we are witnessing? For these reasons, I believe that making housing affordable for all citizens is more important today than it has ever been," concludes Hartwich.
Pyrlis seems to think otherwise. "We believe that reports such as the Demographia report may make great reading and certainly help the cause of the 'let's release more land' advocates.
"The affordability of a city, however, cannot alone be measured by the number of new houses built and how this compares to average incomes. We would also have concerns or question the relevance of how housing affordability in Tokyo or Berlin has any bearing on people's ability to buy and hold a home in Australia. Let's not forget, the way homes and cities have evolved in places overseas are very different to Australia and the supply of 'new' housing is very important but it alone does not drive affordability," says Pyrlis.
"In our view, yes housing can be expensive, but that should not stop the first-time buyer from taking the first step. It should be remembered that housing markets will always be in under- and over-supply and each part of every city is not always in sync with the other. Trying to pick a cycle is pointless; what does hold true is that with a rising population, stable employment and access to money, well-located housing will always grow in value and will always be perceived as 'unaffordable'."
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