Are the costs of living and doing business in Sydney likely to encourage migration away from Australia’s largest city?
Are the costs of living and doing business in Sydney likely to encourage migration away from Australia's largest city? With the costs of living and doing business in Sydney rising disproportionately higher compared with other capital cities.
Over the three months to May 2015, Sydney's median selling price of a house was recorded at $880,000 and the median selling price of a unit was $638,000. Both the Sydney median house and unit prices were higher than the respective house and unit prices across each capital city. In fact, Sydney's median unit price was higher than the median house price in any other capital city.
Melbourne has the second most expensive median house and unit prices however, Melbourne's median house price is $259,800 lower than Sydney's and the median unit price in Melbourne is $158,000 lower than Sydney's.
Difference between median house and unit prices – May 2015
It is important to remember that most broad measures of the housing market reflect only the capital cities and are weighted based on the number of dwellings in each city. As a result, Sydney being the largest capital city, has the greatest influence on those figures. This is highlighted by the fact that the combined capital city median house price is $600,000 (only Sydney and Melbourne have a median higher) and a median unit price of $504,000 (only Sydney has a higher median price).
Looking at median dwelling prices (combined houses and units), they are substantially lower outside of Sydney. Median prices are 24% lower in Melbourne, 38% lower in Brisbane, 47% lower in Adelaide, 32% lower in Perth, 56% in Hobart, 31% in Darwin and 27% lower in Canberra.
Median dwelling prices – May 2015
When we compare household incomes across the cities, Sydney still shows a premium, but not to the same extent as housing prices. According to the latest household income survey from the Australian Bureau of Statistics, median household incomes are 9.2% lower in Melbourne, 11.1% lower in Brisbane, 24.2% lower in Adelaide, 1.8% lower in Perth and 24.0% lower in Hobart. Darwin and Canberra median household incomes were actually 14.1% and 23.1% higher than Sydney's.
For houses there is a significant differential between median selling prices in Sydney compared to other cities. The narrowest differentials are found in: Melbourne (30%), Canberra (33%), Darwin (35%) and Perth (40%). Elsewhere the differentials relative to Sydney house prices are: Brisbane (44%), Adelaide (52%) and Hobart (59%).
Median house prices – May 2015
Sydney is also much more expensive to purchase units than all other cities. Across each city the median price differentials are recorded at: 25% lower in Melbourne, 38% lower in Brisbane, 46% lower in Adelaide, 32% lower in Perth, 58% lower in Hobart, 27% lower in Darwin and 36% lower in Canberra.
Median unit prices – May 2015
Sydney home values have risen at a much faster pace over the past 12 months (16.0%) than any other capital city. We are also seeing across NSW that 60% of new lending is to investors, obviously it would be higher just in Sydney. We still anticipate further growth in Sydney home values over the coming year however, the value proposition compared with other major cities for purchasing Sydney housing is moving more out of balance as the rate of capital gain substantially eclipses that of every other capital city.
Of course people will continue to purchase in Sydney because it is our biggest city and has the most jobs. The significant cost of housing along with the cost of office space in Sydney does create opportunities for other cities (not just capital cities). Both housing costs for workers and office space for businesses are cheaper outside of Sydney. There are savings to be had for both businesses and individuals for not being in Sydney.
The benefits of lower mortgages for individuals must be appealing despite the fact that wages may not be as high as those in Sydney. Furthermore, potentially lower wages and lower office occupancy costs are also attractive for business balance sheets of and the profitability for shareholders.
Cities and states outside of Sydney and New South Wales should be looking at incentives to attract businesses and employees to these regions. Outside of Sydney and Melbourne capital growth has been weak and the economic performance has also been weak. Providing incentives to attract more jobs and more people to these areas should be an appealing way for governments to collect more taxation revenue and to improve the performance of their local economy. For individuals, housing costs are usually their largest area of expenditure; the prospect of cheaper costs along with decent employment opportunities should be a more attractive prospect than spending a substantially larger amount to live in Sydney. While the NSW economy continues to thrive and interest rates remain low, the attraction of Sydney housing is obvious, however the affordability challenges facing this market are mounting and there is growing disequilibrium in housing costs between the major cities. It is reasonable to expect more Sydney-siders and Sydney based businesses will start considering more affordable options for living and headquartering their business.
Article by Cameron Kusher, CoreLogic RP Data senior research analyst.
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