Have you wondered about Australian house prices and how unaffordable they seem?
If recent news is any indication, the situation is grim: Sydney was recently ranked the second-most unaffordable housing market in the world and both Sydney and Melbourne were categorised as “impossibly unaffordable” by a respected report.
Diverging housing affordability: Melbourne vs. Sydney
The housing affordability gap between Melbourne and Sydney is now at its widest point in two decades, according to the report, highlighting the significant economic and policy-driven impacts shaping housing markets in the two cities.
The report in question is the 2024 Demographia International Housing Affordability Report (DIHA).
DIHA has been ranking housing affordability across Australia’s major cities, and several other global housing markets, since 2005. It ranks housing affordability based on median price-to-income ratios (median multiples).
In its 2024 report, DIHA introduced the category of “impossibly unaffordable” due to increasingly unaffordable home prices across the globe. Sydney, Melbourne and several other Australian and global cities now fall into this category.
Melbourne housing vs. Sydney
So, what’s driving the housing affordability gap between Sydney and Melbourne?
Government policies and economic influences
One possible explanation is that Sydney’s housing market has been buoyed by robust government policies and strong net migration, bolstering demand and sustaining price increases.
In contrast, Melbourne has grappled with varying policy impacts, including changes to Victorian land taxes that have affected investment property owners disproportionately. These have contributed to a slowdown in house price growth in Melbourne, despite its ongoing appeal for investors and homebuyers.
Market response and investor behaviour
The adjustment in Victorian land taxes has prompted some asset-rich investors, facing higher tax liabilities, to reconsider their investment strategies. This has led to increased supply in Melbourne’s housing market, tempering the response to demand pressures and contributing to a more stable pricing environment than Sydney’s.
The appeal of Melbourne: A rising alternative
Despite being historically overshadowed by Sydney, Melbourne is gaining traction as a more viable option for homebuyers and investors.
Rising affordability and investment potential
Miriam Sandkuhler, CEO of Property Mavens, notes that Melbourne’s improving affordability, attractive rental returns and continued population growth position it favorably for property investors.
This sentiment is echoed by others in the industry, suggesting Melbourne may emerge as a leading destination for property investment over the next five years.
Comparative market dynamics
Further, recent analyses indicate that while Sydney commands higher median house prices, Melbourne offers a more balanced cost-to-income ratio. This makes Melbourne more appealing to first-time buyers and long-term investors looking for sustainable growth opportunities.
Future outlook: Navigating economic shifts
Experts anticipate continued divergence in housing affordability trends between Melbourne and Sydney. Factors like evolving economic policies, demographic shifts and global market dynamics will likely influence how these cities’ property markets fare.
Conclusion
As Australian housing affordability continues to deteriorate, the widening gap between Melbourne and Sydney reminds us of the potential for policy impacts on property markets.
And while Sydney remains a global beacon of prosperity, Melbourne’s resilient market fundamentals and improving affordability underscore its growing appeal as a sustainable alternative for prospective homeowners and investors alike.