Posted by RP Data
on 3 February 2015
The cost of Sydney housing relative to other capital cities is widening and the cost of buying a house as opposed to a unit is increasing as a record number of units commence construction.
According to median selling prices over the three months to December 2014 published in the CoreLogic RP Data Home Value Index report, the gap between capital city house and unit prices has never been greater. As at December 2014, the capital city median house price was almost 20% higher than the capital city median house price. In dollar value terms, median house prices are $100,000 greater than unit prices.
Median prices are good for measuring relativity of pricing between markets and to demonstrate the typical price that homes are selling for over a specific period. Because a median price can be substantially biased by different buyer segments that are active or inactive in the market, the median price isn't a reliable indicator for measuring the rate of capital gain over time.
Sydney has the largest differential between median house and unit prices across the capital cities at $243,000. Melbourne ($170,000), Brisbane ($102,000), Perth ($110,000) and Canberra ($172,000) each also have a difference between house and unit prices in excess of $100,000. Across the remaining capital cities, the gap between house and unit prices are recorded at: $87,800 in Adelaide, $80,000 in Hobart and $32,000 in Darwin.
In Sydney, Melbourne and Canberra the percentage difference between house and unit prices has never been greater than it is currently. In Brisbane and Perth the differential is at a near record high. This goes some way to explaining why we are seeing record high dwelling commencements for units. In particular, there is a large volume of new unit stock being constructed in Sydney, Melbourne and Brisbane. There is growing demand for unit stock, both from investors and owner occupiers and the sheer affordability difference between house and unit prices goes some way to explaining this growing level of demand. The challenge will be ensuring that overdevelopment doesn't occur; demand has increased for higher density housing stock but the level of apartment development currently taking place is unprecedented. Remember that units have typically been the domain of investors rather than owner occupiers.
Focusing on the actual selling prices of houses and units you can see substantial variance in housing costs across the cities. Sydney housing stands out as being significantly more expensive than other capital cities with median prices of $858,000 for houses and $615,000. The median selling price of a house in Sydney is by far and away the most expensive of all capital cities. To put Sydney's price premium into some context, the Sydney median unit price is greater than the median selling price of houses across all other capital cities except Melbourne ($660,000). The cost of housing in Sydney, and to a lesser extent Melbourne, seems to be disengaging relative to other capital cities, much like the gap between house and unit prices in these two cities.
Although the cost of housing in Sydney relative to other capital cities is significant and generally increasing, the differential has actually been much greater in the past. As the final charts show, Sydney housing costs relative to other capital cities are generally increasing but across each city they have previously been higher. The premium for houses in Sydney compared to each remaining capital city is currently recorded at: 30.0% in Melbourne, 74.4% in Brisbane, 99.6% in Adelaide, 56.0% in Perth, 145.1% in Hobart, 52.7% in Darwin and 49.2% in Canberra. Looking at the unit market it is a similar story with Sydney premiums recorded at: 25.5% for Melbourne, 57.7% for Brisbane, 79.8% for Adelaide, 39.8% for Perth, 127.8% for Hobart. 16.0% for Darwin and 52.6% in Canberra.
Although Sydney has some way to go to achieve the significant premiums in housing costs of the past, note that the last time the differential was as large was late in the 2001-04 boom. The chart could be read in two ways: housing prices in Sydney have further to escalate as they did in the past or, the previous boom was an abnormality and the escalation in Sydney housing costs can't continue all that much longer. We're already noting that on an annualised basis home value growth is slowing in Sydney and all capital cities. Therefore we would anticipate the gap is unlikely to increase much further.
