The almost 4.5 year growth phase in capital city home values have driven prices higher and this week we look at the now significant premium for housing in Sydney and to a lesser degree the premium in Melbourne.

CoreLogic calculates capital city median selling prices on a rolling three month basis.  As at September 2016, the combined capital city median house price was recorded at $600,000 and the median unit price was $510,000.  Importantly, because a median is based on sales and transactions that are mostly occurring in Sydney and Melbourne, this figure is heavily influenced by these two cities.

Quarterly median house and unit selling
prices, combined capital cities


With home values rising at a much stronger rate in Sydney and Melbourne there is increasingly a significant premium for housing across these two cities.  The median house price in Sydney is recorded at $890,000 and the median unit price is $675,000.  In Melbourne, median price are recorded at $641,500 for houses and $485,100 for units. 

Sydney median unit price vs Melbourne
median house price


The second chart highlights Sydney median unit prices and Melbourne median house prices over time.  Interestingly, Sydney units have regularly been more expensive than Melbourne houses and this remains the case currently.  In fact, Sydney median unit prices have consistently been higher than Melbourne median house prices since February 2012.

Looking at median selling prices of houses over the September quarter across the individual capital cities shows a substantial premium in Sydney.  Across the cities, median prices were recorded at: $890,000 in Sydney, $641,500 in Melbourne, $505,000 in Brisbane, $440,000 in Adelaide, $480,000 in Perth, $349,500 in Hobart, $500,000 in Darwin and $625,000 in Canberra.  The median house price in Sydney is 39% higher or $248,500 more expensive than median prices in the second most expensive city, Melbourne.  Although the premium for Sydney housing is rising and wide on an historic basis, the Sydney premium (in percentage) terms was higher than it is currently for all capital cities back in late 2003.

Quarterly median selling prices of houses
across the capital cities


Turning to the median selling price of units, we’ve already noted that Sydney median unit prices are higher than median house prices in all other capital cities at $675,000.  Elsewhere median unit prices are recorded at: $485,100 in Melbourne, $390,000 in Brisbane, $351,500 in Adelaide, $410,000 in Perth, $283,000 in Hobart, $440,000 in Darwin and $421,000 in Canberra.  Sydney’s median unit price is $189,900 or 39% higher than Melbourne’s.  As with houses, although the Sydney unit premium is substantial, in percentage terms it has been greater in the past.  

Quarterly median selling prices of units
across the combined capital cities


Although the gap in housing costs has been greater in the past, in dollar value terms it is substantial. And is likely to be a challenge in the future.  Housing in Sydney and Melbourne has become more expensive than elsewhere in the country due to much stronger job and broad economic conditions.  Despite these factors we anticipate that the substantial cost of housing in Sydney will make it a less desirable location for people to migrate to.  The latest demographic data shows that a greater number of net overseas migrants are choosing to move to NSW rather than Vic.  Meanwhile, net interstate migration into Vic is at a record high while the outflow from NSW is historically low but has started to pick-up.

We expect that migration, particularly interstate migration, into Vic (which is a proxy for Melbourne) will continue to rise while over the coming years while it is anticipated to slow into NSW (as a proxy for Sydney).  Housing costs are likely to be one of the key drivers of this change.  While both economies are strong and creating jobs we expect that more interstate migrants will be attracted to Melbourne due to its substantially more affordable housing costs, rather than Sydney.

Outside of Sydney and Melbourne, cheaper housing alone is proving not enough to attract people to these cities.  This highlights the importance of a strong economy with decent employment prospects and shows that housing affordability alone is no longer enough of a lure to attract migrants to a region.