A recent speech by the Reserve Bank's Luci Ellis highlighted why housing demand is greatest in inner-city areas and why so many Australians want (need) to live in a capital city.
The Reserve Bank's (RBA) Head of Financial Stability gave an interesting speech entitled 'Space and Stability: Some Reflections on the Housing-Finance System'. If you have time a copy of the speech is available here and is well worth a read.
Some of the key points made within the speech were:
- Housing prices in the inner-ring are becoming more expensive than those in outer areas of our capital cities.
- The availability of jobs is becoming even more centralised, particularly within already established working nodes.
- It is increasingly difficult to grow smaller cities and few centres outside of the capital cities have job magnets. Given this, as residents are priced out of capital cities more affordable regional housing options are not a viable alternative.
- The rise in prominence of inner-city unit living is driven by a desire to live closer to the city centre at a lower cost than detached housing.
- Australia has comparatively low density cities with significant price premiums in the most convenient areas of the city. If housing costs rise beyond people's comfort levels, it is not always feasible or attractive for households to respond by cheaper areas, especially if the more affordable options are further away from their place of employment.
- The RBA is hopeful that over time the structure of our cities is such that home owners have more options as to where they can live rather than having to live in expensive housing closer to working nodes such as current policies often necessitate.
The speech goes someway to explaining why detached housing closer to the city centre is much more expensive than that further away. Housing in these areas is in relatively short supply and has relatively high demand due to its convenience to major working nodes. As a result prices in these areas have been bid higher over time.
We often see commentary about which areas have been best performing however, this analysis is typically undertaken over a relatively short-time frame, say 10 years. These analysis often find that new greenfield areas and regional housing markets are better for capital growth than inner city areas. The nature of new greenfield development both within a capital city and in regional areas is such that it lifts typical prices in these areas from a very low starting point to a much higher new base as the area sees an influx of new modern housing. While over a shorter time frame this may result in heightened levels of median price increase, this is typically a relatively short-term phenomena. It also compares the shift from a much lower quality initial housing product to a far superior newer housing supply.
The tables included in this report look at those suburbs nationally that have recorded the largest rise in median selling prices over a 10 year and a 20 year timeframe. It is important to remember that median prices are not the most appropriate measure of a market change because they don't continually measure the change across the same collection of properties, rather they are just looking at those properties that transaction over specific periods (which may be dramatically different each year).
Nevertheless, the first table over a shorter timeframe shows a strong bias towards regional areas of the country in particular those linked to the resource sector. The rate of compound growth over the 10 years is much higher than those in the second table which looks at the 20 year period and reflects the boom in the mining sector over recent years.
The second table supports comments from the RBA with the list dominated by inner city suburbs. Interestingly, Miles and Chinchilla in regional Queensland are the only regional suburbs listed. Elsewhere, the list is dominated by a collection of the most desirable inner city suburbs in Sydney, Melbourne and Brisbane. All with high median prices and all relatively close to major working nodes.
With the population continuing to grow and housing supply insufficient we would expect that inner-city houses will continue to be the best performed over the long-term with significant demand and a short supply available.