In Sydney property, things are looking up. And further up....

According to a paper released by the Australian National University’s Tax and Transfer Policy Institute, median house prices nationally doubled between the early 1980s and 2003, and again between 2003 and 2022. House prices weakened briefly in 2022 after an enormous upswing following the pandemic, but the downturn was short-lived, then the market went through a rapid recovery in 2023 and hasn’t looked back since.

In 2024, the median home price in Sydney, where half the dwellings in the study have a smaller value than the median and the other half have a higher value, is slightly above $1.4 million according to CoreLogic. The ABC calculated what the net income – that’s after tax, of a household would have to be to afford this ‘median house’ and the conclusion was that an annual income of $238,800 would be required. 

It wasn’t so bad in other capital cities. For example, the net income needed in Brisbane was $175,440, Melbourne was $159,600, Adelaide was $156,876, and Perth was $154,716, but as usual, in matters of housing costs, Sydney leads the way. Two important things to keep in mind: First, we're looking at the median house value — not the top of the range or lower-quality homes, and these are net incomes, which is the amount of money people earn after they've paid tax. 

Demographia International’s housing affordability survey found that Australia is one of the most unaffordable housing markets in the world, but in spite of continuing high interest rates and diminishing affordability, Sydney house prices in 2024 have so far had a positive year. June figures confirm a continuation of the overall positive trend, with Domain expecting house price growth to increase by 6 to 8 per cent, reaching a median price above $1.7 million by the end of the next financial year. 

Domain head of research and economics Dr Nicola Powell says population growth, construction challenges, and borrowing power will be the key drivers behind the forecast price growth: “It’s been the chronic structural undersupply that’s been built over many, many years. We just haven’t met the needs of the growing population in terms of social housing and in terms of affordable housing, and that has continued to place pressure on price.

“We have seen an increase in single-person households and a decrease in household size in general, both amplifying housing demand, further compounded by migration,” Powell said.

“Home building has also struggled to keep up with population growth due to the scarcity of land, weak building approvals, and high construction costs, exacerbating the existing structural undersupply.”

Dr Powell said unit prices in Sydney are also expected to increase: “Tight rental markets [are] pushing people to make a purchase, placing demand on units rather than houses – I think it’s affordability. Also, we’ve increased the cost of debt, and we have lower borrowing capacities – that’s also steering demand towards units,” she said.

More expectations of solid price growth in Sydney come from PropTrack who predict price rises for Sydney of 3 to 6 per cent over the next financial year. This would add more than one hundred thousand dollars in value to many Sydney properties that already have median prices over $3 million. It would also be similar to the 5.8 per cent average rise in values over the past year.

PropTrack director of economic research Cameron Kusher said the expected growth in Sydney prices over the next year would be relatively modest when compared to previous market rises but would still mean buyers needed to pay substantially more: “Even a small (percentage) rise in Sydney makes a massive difference because of how expensive prices already are,” he said.

There are indications that the frenzied tempo of property auctions seen earlier this year is slowing.  Average bidder numbers are down year-on-year and that means it’s getting easier for buyers to find a property and make their purchases at auctions. Meanwhile, the number of new listings is increasing as clearance rates are slightly lower.

Ray White’s chief economist Nerida Conisbee said this was good news for buyers: “Towards the end of last year, there was a real shortage of stock and listing volumes were quite low so we did see pretty high [numbers of] active bidders but, since then, we’ve seen a pretty big pick up in the number of auctions so that’s reduced the number of bidders at auction,” she said, adding that she felt it was easier now for first home buyers and upgraders.

Cooley Auctions’ Damien Cooley also said fewer buyers were showing interest in bidding at Sydney auctions. “I think it’s a great time to be buying, so long as we don’t see interest rate increases later in the year, I think vendors will have an opportunity to sell at a good price and buyers will have a lot more opportunity to purchase come springtime.”


Rents reach new records

It’s not just house prices hitting record highs. Sydney rentals are also setting records as renters seek more affordable properties, and this mostly means units anywhere in the greater Sydney area.
Units in virtually every suburb are more expensive to rent than they were a year ago, and the top 20 have increased by 20 per cent a year more in the year to June.

Asking rents for the typical unit in Sydney rose 2.9 per cent – or $20 a week – to $720 a week in the June quarter, according to Domain data. However, asking rents for a typical house in Sydney remained flat at a record of $750.

Rental growth is highest in suburbs that aren’t too close to the CBD, driven by tenants looking for more affordable properties by moving further away from the heart of town. Lakemba led the way with asking rents for units increasing 31.6 per cent to $500 per week in the year to June. Several neighbouring suburbs followed the trend, including Belmore where unit rents rose 31 per cent and Jannali and Penshurst that went up by 28.9 per cent each.

Domain chief of research and economics Dr Nicola Powell said the increase in unit rents across Sydney showed that tenants are competing for affordable locations and property types: “The strongest rates of rental growth particularly for units is at that lower end. It is showcasing how stretched Australians are. Affordability is at the forefront of renters’ minds,” Powell said.

“The rental affordability ceiling has been not just reached but smashed. The ability of a tenant to find an affordable rental is pretty much impossible,” Powell said. “People will opt for house share, opt for cheaper units or fast tracking a purchase or opting to relocate elsewhere.”

She said despite Sydney’s vacancy rate edging up to 1.2 per cent, conditions were unfavourable for tenants: “It’s still a landlord’s market,” she said.

She said that to get Sydney’s rental market in balance, an additional 6000 rentals are needed to increase the vacancy rate to 2 per cent, or an additional 14,000 for 3 per cent. “We have seen unit rents see stronger rates of consistent growth compared to houses over the last couple of years.”

Asking rents for houses also went up. The highest rise was in Bellevue Hill where they gained 35.3 per cent to $2500 per week. House rents also jumped in North Bondi (up 29 per cent) and Coogee (up 26.3 per cent). This percentage rise was followed by similar high gains from several popular but more affordable western Sydney suburbs. Warwick Farm lifted 29.4 per cent while South Granville and Wiley Park both rose 27.3 per cent.

Rents for the inner south-west jumped 6.3 per cent – or $50 – in the past three months to $850 and are up $100 in a year. Asking rents in the outer south-west rose to $620 a week, $20 higher than three months ago and $70 higher than a year ago.

St George Bank chief economist Besa Deda said the search for more affordable areas away from the CBD and coastline would continue: “Anecdotes do point to people looking for more affordable rental homes, particularly amid the cost of living squeeze, which is still continuing, so people are pulling their purse strings tighter,” she said.

She also expects that pressure on rents will continue because of the shortage of dwellings, very strong population growth, and weakening residential construction: “I don’t think they’ll continue to accelerate at the pace we saw last year, but I think the rate of growth will remain at a pace that will mean households will continue to face that cost of living squeeze.”


Winners and losers

A new report from CoreLogic shows that property resales are at their highest rate of profitability since July 2010. Mortgage borrowers and homeowners across Australia made a median gross profit of $265,000, down slightly from the $268,000 vendors pocketed who sold in the last quarter of 2023. 

CoreLogic’s Pain & Gain, March Quarter 2024 report analysed 85,000 resales and found that 94.3 per cent of all transactions achieved a nominal capital gain. CoreLogic estimated the combined value of nominal gains from resales was $28.6 billion in the March quarter, down a bit from the $30.6 billion gained in the December 2023 quarter.

The report also showed 97.1 per cent of house resales made a nominal gain in the March quarter, compared to 89.0 per cent of units. Across Australia, homeowners who sold properties in the March quarter made a median paper profit of $388,500 if they sold a house, compared to $165,000 for those who sold a unit, CoreLogic figures show, and the gap was widest in Sydney ($600,000 for house sellers, $200,000 for units).

There was also an increase in the number of sales after holding a property for three years registering a high of 15.8 per cent of total house resales, suggesting that some highly leveraged borrowers have been forced into a sale.

On the ‘pain’ side of the ledger, some vendors are recording sales at a loss despite the general rises in the Sydney market. One in four home vendors in Parramatta sold at a loss as several years of new apartment construction ate away at their capital growth. 

This increase in supply has had benefits for buyers and has improved affordability in the area. However, an increased rate of loss-making sales indicates that owners who took out large mortgages could be struggling to repay them. 25.3 per cent of home sales in the Parramatta local government area were made at a loss; the median loss was $49,750 and the homes sold were held on average for 7.8 years.

The percentage of loss-making sales was higher in Strathfield (22.8 per cent), Ryde (22.4 per cent) and Burwood (20.9 per cent). In these areas homes were held between five and eight years. CoreLogic head of Australian research Eliza Owen said many of the loss-making sales were caused by an increase in the number of apartments that had been built in these neighbourhoods in recent years.

“[It’s due to] high levels of unit supply, that have kept growth across the segment relatively low over time,” she said. “Parts of these areas do bear a lot of that density burden, she said. 

“We want prices to come down. We want lots of choice for buyers. There is some risk associated with that, especially when people have taken out large loans. If values are rising and profits are increasing, it’s not only a good thing for sellers, it’s also kind of a guarantee that if you do fall behind on your mortgage payments, you can service your debts.”

In Sydney overall, the rate of loss-making sales was steady at 8.4 per cent in the March quarter - the same as in the previous three months. Sydney house sellers were unlikely to lose money (1.8 per cent) compared to Sydney unit sellers (12.9 per cent), and of those who made a profit, Sydney house sellers made three times as much as unit sellers.

Starr Partners chief executive Douglas Driscoll told the Sydney Morning Herald there had been an apartment building boom in some parts of Sydney that was reflected in these figures: “You wonder why they were being built – were they being built to satisfy demand or were they being built because developers could get planning permission for them?” he said. “The market’s somewhat out of kilter.

“Yes, we are facing a national housing shortage which is exacerbated in Sydney but it’s always a matter of building the right houses. Families are unlikely to want to squeeze into a one or two-bed unit.”

He said houses seldom sold for less than their purchase price, and in general units don’t often sell for losses. “There’s fairly high demand for apartments as well,” he said. “It depends where they are and what they are,” adding that there are circumstances such as owners getting carried away at auctions when they bought, or the area changing around the property, or new tower blocks going up nearby that can affect resale prices.


More density needed

Saul Eslake, an independent economist, says that state and federal governments need to do more to remove obstacles that prevent more high density housing close to transport hubs. "The federal government in particular and to some extent state governments need to back away from what have often been long established policies that needlessly inflate the demand for housing," he told ABC’s David Taylor.

Duplexes and semi-detached homes were once common in Sydney but were banned by many councils and are notably absent in many of the city’s newer suburbs. Only two of 32 local environmental plans across Sydney allowed terrace houses and one- or two-storey blocks in low density residential zones. Now, however, councils will be required to consider greater choice and supply.

As part of the NSW government’s planning reforms that are intended to boost housing supply, duplexes and semi-detached homes – townhouses, will be added to the mix in 124 council areas across the state. This will be done by requiring all but four councils to consider development applications for dual occupancies, two separate homes on a single block, and semi-detached homes in low-density zones.

Mid-rise apartment blocks must also be allowed in medium density zones near transport and town centres. This intends to create more housing within a 10-minute walk or 800 metres from transit hubs in greater Sydney, the Hunter, the Central Coast and the Illawarra.

The government believes these moves will create about 112,000 new homes in these areas. NSW Planning Minister Paul Scully said more housing choice meant more options for renters, families and empty-nesters: “Diversity of housing allows people to stay in their communities and neighbourhoods through different stages of their life, with family, friends, and essential workers able to live nearby,” he said.

“Dual occupancies already provide a great housing solution for families and downsizers in many areas. They have the space that families need, and often come with a slightly more affordable price tag than detached homes on larger blocks.”

The NSW government is also planning for 30,000 new homes to be built on 44 state-owned sites, with the possibility of also acquiring private land to hold these thousands of new dwellings. The majority of these homes will be built by the private sector although exact details about their locations aren’t yet forthcoming.

With increasing density comes the need for more investment in infrastructure. Planning Institute of Australia national policy director John Brockhoff told the Herald’s Christopher Harris that a “refreshed long-term urban growth strategy is needed as part of the next stage of housing reform.

“The strategy should highlight where and when there may be even greater opportunities for future growth – and where different types of infrastructure, parks and services need to be planned and funded,” he said.

“Many areas slated for growth around existing centres need finer-grained planning and design so that development improves amenity for new and old residents alike. This work would show what local infrastructure is needed and how different types of development can be fitted in.”

Urban Development Institute of Australia chief executive Stuart Ayres agreed, saying the government needed to spend more enabling infrastructure. These projects could include local roads, water and sewerage, and transport to make areas viable for developers.


The housing crisis

Two senior journalists with the Sydney Morning Herald, Josh Gordon and Angus Holland, looked at our current housing crisis and asked the question: “How did we get into it?”. Their answers were an interesting mix of history and economics.

They found our current crisis dates back to the 1990s when house prices began to detach from wages and it became increasingly difficult for would-be homeowners to save enough for a deposit so they could purchase a home. The deterioration in housing affordability was accompanied by a growing increase in the numbers of low-income renters. Over time, house prices and rent levels have become more unaffordable with every passing year.

To further add to our growing shortage of housing is that dwelling completions are at their lowest level since the September quarter of 2014, and forecasts from the RBA show that residential construction activity will stay weak until at least before the end of this year. Our current level of dwelling completions per 100,000 people is at its second lowest level on record.

Coincidentally, this month is the beginning of the five-year period over which the Albanese government has announced that its Housing Accord will deliver "1.2 million new, well-located homes". To achieve this target, Australia will somehow have to find ways to build 240,000 new homes each year — or 20,000 a month.

The last time Australia got anywhere close to building 240,000 new homes in a single year was 2017, when 223,563 new homes were added to the supply. The Australian Bureau of Statistics tells us that the December quarter of 2023 “was one of the strongest quarters of house completions of the last five years”, and we completed a total of 114,178 homes in those twelve months. That’s a significant shortfall on the government’s target.

The housing crisis is naturally going to feature prominently in the next federal election, expected sometime in 2025. News.com.au’s Tarric Brooker put some numbers down for consideration by those analysing the extent of our housing shortage and found that, according to figures from the Australian Bureau of Statistics (ABS), around 15 per cent of all new dwelling completions do not result in a net addition to Australia’s dwelling stock.

He said this can be due to the impact of knock down rebuilds, to the demolition of existing homes to make way for new developments and infrastructure, or to a number of other factors.

Looking back to the year ending June 1993, 17.8 per cent of the demand for new homes came from the impact of immigration. The most recent ABS figures which cover up to the September quarter of 2023, or 30 years later, 83.2 per cent of demand for new homes comes from population growth driven by net migration.

Mr Brooker points out that another important factor in our shortage of housing is a shrinking in the size of the average Australian household. In 2006 the average household comprises 2.606 people, while the June 2023 ABS figures show the average household size is 2.502 people. 

While this doesn’t sound like much of a difference, he says the maths of this seemingly miniscule reduction in how many people are accommodated in each household mean that Australia requires about 435,000 more homes than it would have if household size had remained the same as it was in 2006.

Sue Williams, of ABC News online, quoted Reserve Bank assistant governor Sarah Hunter who added fuel to the same fire when she told the Centennial Congress of the Real Estate Institute of Australia that if we had as many people per household as we did 40 years ago, “we would need 1.2 million fewer dwellings”.

“Right now, just under 27 million people live in Australia, in about 11 million households,” Hunter said. “The average number of people living in each household has trended lower, from around 2.8 in the mid-1980s to around 2.5 of late.

“This may sound like a small change. But, if for some reason average household size rose back to 2.8, we would need 1.2 million fewer dwellings to house our current population – no small difference.”

Ms Williams then pointed out that this is the same number of homes – 1.2 million – the federal government hopes will be built over the next five years. A little bit goes a long way – if it’s in the right places.


Sources:

‘The type of home that’s more than twice as profitable as its neighbour,’ Elizabeth Redman, Domain, 12 July 2024
‘Want to rent an apartment? The cities where it could cost you as much as renting a house,’ Jessica Taulaga, Domain, 10 July 2024
‘Affordability ceiling has been smashed’: Sydney rents hit record highs’, Tawar Razaghi and Elizabeth Redman, Domain, 4 July 2024
‘Are derelict homes part of the answer to Australia's housing crisis?,’ Michael Janda, ABC News online, 4 July 2024
'Build more houses' sure sounds great as a solution to the housing crisis, but a few key factors scream 'buyer beware', Annabel Crabb, ABC News online, 3 July 2024
‘Here's how much you need to earn to afford a mid-range home in your capital city,’ Elissa Steedman, ABC News online, 9 July 2024
‘How Australia can house a growing population without building more homes,’ Sue Williams, ABC News online, 3 July 2024
‘Ridiculous’: The Sydney suburbs where rents soared most,’ Tawar Razaghi, Domain, 6 July 2024
‘Sydney’s housing reforms have shaken up the city. There’s more to come,’ Christopher Harris, Sydney Morning Herald 5 July 2024
'Impossibly unaffordable' housing: Australia, US dominate global unaffordability rankings,’ Madeleine Wedesweiler, SBS News, 16 June 2024
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‘Sydney home prices tipped to rise off back of tax cuts, migration’, Aidan Devine, realestate.com.au, 27 June 2024
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