House prices are changing the way we live





House prices are changing the way we live

Matt Wade

September 17, 2014

It's spring, the property market is running hot and familiar debates are raging. Have prices overshot? Is there a bubble? Will investors get burned? How can we help first home buyers? But as the state of the property market is canvassed daily, there's surprisingly little discussion about how the dynamics of that market affect how we live, and the way our cities function.

Over the past two decades patterns of housing affordability in Sydney and Melbourne have shifted as the values of properties close to the city grew much faster than those in outer-ring suburbs. This became entrenched during the great property boom from 1997 to 2003. With each subsequent run-up in house prices. the inner-city price premium seems to grow.

It's taken for granted these days that houses close to the central business district cost much more than those in outer suburbs - but it wasn't always so. In 1990 the median house price in the Sydney suburb of Lewisham, six kilometres from the Sydney GPO, was similar to North Parramatta, which is 21 kilometres west. The median in Melbourne's Albert Park, four kilometres from Melbourne's CBD, was just a little higher than Box Hill, which is 15 kilometres east. Across both cities, the price differential between the most expensive postcodes and the least expensive was relatively small compared with now.

The upshot after decades of house price growth favouring the inner-ring? Lewisham's median price is now 57 per cent higher than North Parramatta's and Albert Park's median is 50 per cent higher than Box Hill's.

It's not just a desire for harbour views and hip cafes that's driving up the inner-city premium - it's proximity to good jobs. Our urban economies have been transformed in the past 20 years. Employment has become less dispersed across our metropolitan areas, partly due to the relative decline in the economic importance of manufacturing. Jobs growth has been more concentrated, especially in and around CBDs.

This change isn't unique to Melbourne and Sydney - in cities across the world knowledge jobs are clustering near well serviced hubs, stoking demand for housing near central city areas and pushing up prices..

The social and economic implications of this shift are far-reaching. Not long ago it was possible for a family in Sydney or Melbourne to buy a first home in an affordable neighbourhood and "trade up" to more desirable or convenient locations once they became more established. Savvy upgraders might eventually end up with an exclusive address. But the inner-ring price surge has more or less torpedoed that strategy.

A report by consultancy firm SGS Economics and Planning says buyers who bought their first home in affordable parts of our big cities no longer have those choices. "They are likely to be confined to the same suburb or district they first bought in," it says.

What's more, the size of the premium inner-ring is expanding. House prices have risen by 50 per cent in Sydney and 48 per cent in Melbourne since late 2008, according to RP Data. During that latest price surge the number of Sydney regions with a median house price over $1 million has jumped from three to five. The inner-west region has vaulted into the million-dollar median range alongside the Eastern suburbs, Lower North Shore and the Northern beaches.

Andrew Wilson, a senior economist with the Domain Group, owned by Fairfax, says the Canterbury-Bankstown district is now "pushing into" that category. A quarter of Sydney suburbs now have a median price at or above $1 million. In Melbourne the proportion has grown to one suburb in seven.

Analysis by SGS Economics and Planning shows that in Melbourne in the mid-1990s a household with a median income could comfortably afford a median price house in three quarters of suburbs within a five to 10 kilometre radius from the CBD. But by 2010 things were very different.

"Their choices of buying a median house are confined to purchasing in less than 25 per cent of Melbourne's suburbs, many of which are more than 35 kilometres from the CBD," the report said. "That is, unless they are prepared to seriously compromise on space and house quality."

The rise of dual-earner families has no doubt contributed to this trend. For households with two people working in demanding, knowledge-based jobs, being close to the office makes it easier to juggle family responsibilities and long hours.

The inner-ring property price premium is already creating some glaring economic distortions. Workers on averages wages, or lower, are being forced to live a long way from most of the city's jobs. This threatens to make it more difficult for CBD businesses to find lower skilled labour. The inner-ring premium also raises the spectre of increasing social exclusion.

House price trends are making Sydney and Melbourne increasingly divided cities.

Matt Wade is a Fairfax economics writer. Ross Gittins is on leave.


 














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