I’m a non-parochial Melburnian. I ungrudgingly admit Sydneysiders enjoy superior weather and beaches, which more than compensate for their confusing glass sizes and inferior football code. Our politicians’ interstate sledges are awkwardly contrived and I’ll have no bar of them.
So I evince no schadenfreude when I report that, despite the best efforts of Melbourne’s prevailing capitalists, Sydney has cemented its unenviable lead on a grim metric: it is very expensive to live there.
According to research by the Committee for Sydney (CFS) released last week, Sydney boasts the sixth least affordable housing market in the world — behind only Hong Kong, San Francisco, Singapore, Vancouver and Tel Aviv. Melbourne, no paragon of payday tranquillity despite those misleading livability rankings, doesn’t even make the bottom 20, nor do our other capitals.
Unsurprisingly, as Sydney’s housing has grown less affordable, young people are moving away in droves, and new young people aren’t moving in to replace them. CFS estimates that Sydney’s housing crisis is costing it $10 billion per year — $1.5 billion of which is due to “loss of talent due to out-migration and diminished appeal”, and a subsequent $2.9 billion to “fewer companies grown, retained and invested in”. And that’s without fully accounting for “extra recruitment costs associated with higher turnover of staff”, nor the “retention of innovation-minded graduates and, over time, the city’s stock of future potential founders, researchers and entrepreneurs”.
The cost may be alarming, but these are hardly unique findings. Last month the think tank e61 Institute produced a similar paper on “Sydney’s millennial exodus”, showing that for the past 20 years, Sydney has lost about 0.5% of its population each year to other parts of Australia. Again, Sydney is uniquely challenged on this front, with our other major capitals recording minimal or negative net domestic out-migration on average. This evidence corroborates some prevalent anecdata — one comes across plenty of former Sydney residents elsewhere in the country.
The e61 Institute found people in their 30s are leaving the fastest, with many having children and desiring larger homes. More of them are leaving the suburbs where housing prices have risen fastest, and they’re mostly fleeing to less-expensive regional hubs, including Wollongong, Newcastle, the Gold Coast and Canberra.
Sydney is thus on track to lose the economic and cultural dynamism that has cemented it as our nation’s leading city. CFS bemoans a damaging “brain drain” as talented professionals go elsewhere, often to cities where they’re less productive, as they can’t collaborate with similarly skilled peers as easily.
Aside from imperilling growth, the loss of young working-age people presents some immediate practical issues. All cities need essential workers. Elderly residents especially need health and community services on hand, and those require hoards of budding graduates and early-career practitioners to keep the lights on.
Multiple academic reports earlier this year confirmed Australia’s essential workers are being priced out of living near their urban workplaces. In NSW, more than 90% of teachers have been priced out of living in the communities in which they teach. And for Sydney’s essential workers, the past three censuses show many have relocated from inner suburbs to outer areas and satellite cities. This has significantly increased their commuting times and has made staff retention for stretched urban facilities much harder.
An alternative to moving farther out is living at home with mum and dad for longer, or moving back in. Market research firm McCrindle released research last week finding that among those aged 20-24 and not studying full-time, more than half of men and 43% of women live with their parents. Western Sydney’s Fairfield has the highest proportion in the nation, with 50% of non-dependent kids living with their parents. This is a temporary solution, however, taken up mostly by zoomers, who will soon follow millennials in facing tough tradeoffs between scarce and expensive abodes.
Cities cannot continue on such trajectories forever. And while Australia’s capitals are all heading in the wrong direction, Sydney is growing particularly unlivable. There are finally moves afoot from state and federal governments to increase inner-suburban density, but much more work will be needed to foster a healthy urban demographic mix.
There’s no use having that beautiful harbour if even “locals” have to drive for hours to visit it.
Presumably Sydney needs to start looking more like Hong Kong, it is on the way but needs to expand the high rise footprint. Melbourne is following suit of course and the swing from poorly planned cheap McMansion estates to high profit towers will doubtless soon follow in the larger regional towns. This dynamic is primarily driven by developers and the endless demand of investors. Both are small in number but continually able to multiply their effects by means of subsidised capital gains and the like.
With fertility being pushed down further by housing costs the other policy trick will be attracting enough migrant workers willing to tolerate poor pay and the shoddy housing and neighbourhoods in the new concrete canyons. This used to be not so hard but as fertility drops elsewhere the challenge for government may increase. Will Australia actually continue to offer enough of a better standard of living for migrants to make up for cutting ties with home? Short term probably yes, medium term… well climate change will be really making itself felt by then so it’s an extra factor in the mix.
One of the most significant drivers for housing will be middle aged and older single women, while many apartment buildings have good access to amenity, services and security.
Another issue due to the mass of baby boomers doing sea change or regional cities etc. for the past decade, has been the pricing out of workers & families in same towns etc., but not helped by much short term holiday housing eg. AirBnB, zoning restrictions on cabins or micro houses, in favour of maintaining large house prices, real estate agents and rate income.
hong kong? really? Hong Kong is one of the most crowded cities in the world. is such a dramatic solution really the answer. why does it need to go from one extreme to the other? this black and white thinking is what puts people off making any changes whatsoever. Just allowing town houses and low rise apartments would make a massive difference while still being very comfortably liveable.
We just need to deal with multiple property ownership.
Banks being restricted to lending 4 x a person’s Australian salary would immediately drag down prices, get rid of investors using equity to borrow 100%, rein in the $2 trillion of house debt, reduce foreign investors and generally, well, bring houses down to 4 x person’s salary.
We probably wouldn’t need to do much else except provide social housing to those who are struggling financially.
LOL.
People rarely leave their multiple properties empty. Few have the financial resources to do that.
Catastrophically crashing the property market as you propose will certainly produce cheaper housing (and is ultimately the only “solution”), but it will also come with mass unemployment and bank failures, so nobody is going to have any money to buy houses even if their prices are essentially capped to 4x income.
And it still won’t have solved the underlying problem – that you want to make worse – of too many people, not enough houses.
Filling investment properties with unsecured tenants and playing some kind of sick game of musical chairs isn’t exactly helping.
And, yes, the whole point is people don’t have the financial resources to do that so borrow from the banks (more than 4 x what they’re earning) thus we have $2 trillion in household debt (which doesn’t seem to concern you).
How will requiring people to live within their means “Catastrophically [crash] the property market’?
We haven’t got too many people. We have a population of 25m on a vast continent and with enough current housing to house all the households who need houses. What we have is the most inefficient distribution of those houses imaginable. .
It is impossible to divine your actual point here (as usual). Should there be no rental properties ? What about people who want to rent ? Should people not be able to own holiday homes (hardly something that was controversial 30+ years ago). Should people only be allowed to own one property ?
If the complaint is that people cannot find homes to rent, then investors owning multiple properties (and the vast majority do not) is a relatively minor issue because most do not leave those multiple properties empty.
If your point is that housing should be massively cheaper so that more people can buy and fewer rent, then I wholeheartedly agree. I’ve been saying it for over a decade. But we are a long way down the rabbit hole and coming back up without the whole thing collapsing disastrously would be extremely difficult even if people in power actually wanted to – and most of them don’t.
It concerns me a lot because it’s an albatross around the neck of the entire country.
Because a huge part of the Australian economy is underwritten by the faux wealth of the property bubble.
Eg: most of the construction industry is built on the ponzi of funding through increased equity
Eg: It’s all but impossible to borrow money for a small business without securing it against property. So most small business rely on this.
Eg: Lots of consumption (that businesses rely on to function) is driven by leveraging the equity increases in housing.
Etc.
A massive (and it needs to be genuinely massive – probably 80-90% of nominal prices in most of Sydney and Melbourne and 50% in even the cheapest locales) reduction in the real value of housing will utterly destroy the economy in the short term. Consumption will crater. Everyone will feel poor.
Yes we do. That’s why people can’t find homes (to rent or buy). That’s why ambulances are ramping and medical care waiting lists are long. That’s why schools have classrooms in dongas on what used to be the oval. That’s why there will be water shortages. Because of massive and mostly unplanned population growth. Better planning is required. The first part of that is turning the tap down while everything else catches up.
I misread this the first time.
I would have thought it was pretty obvious how limiting lending to 4x when even most “cheap” housing is more than that would crash the housing market. If people can’t get money to buy the asking prices, then the asking prices have to drop. A reduction to 4x multiple in Sydney and Melbourne where the median property is at something like 10x and up to 15x isn’t uncommon represents an enormous change in price. Other capitals are similar, though not quite so large a difference, but it will happen throughout the entire country.
Builders and developers will be nearly all bankrupt (many of them functionally are already, even at current price levels) so private construction will basically stop.
It would be absolutely disastrous in the short term (and probably out a decade or more).
Ireland has limited borrowing to 4 x a person’s salary….
All it would do is remove the air from the bubble.
It would be far less severe than increasing interest rates. Interest rates actually impacted the real economy because people now can’t afford to repay their mortgages.
Ireland had a massive property crash after the GFC. That was when the air was removed from the bubble. Rest assured the “real economy” was very much “impacted”.
In the aftermath they restricted lending to try and prevent it happening again.
The 4x lending limit is actually an increase from those limits.
What do you want more people for ?
Because they exist.
So anyone who wants to relocate to Australia should just come on over ? No policies, no controls, no strategy, no plan ?
I think you’ll find if you try to enter Australia illegally they’ll send you to an island.
But I’m sure you’ve got a big plan for the entire continent of people. Maybe even the entire planet of people. Remember to always think big. It ensures things will always remain beyond your comprehension so you can then just apply maximum fear.
Only if you arrive on a boat.
I can certainly think of some sensible basic principles to apply. Like, say, matching intake to our capacity to build housing, infrastructure and services and skills to actual shortages.
You’re the only person talking about fear. My points are simple and objective ones of maths, national interest and consequences.
Maths?
But you object to limiting lending to 4 x a person’s salary?
You don’t have all of the variables to work out the carrying capacity for an entire continent so you’re working from an equation of:
X + Y = Z
Where
X is erm there’s too many people
Y is hmm I think we need more houses
Z is ???
No, that’s all in your head. I think a 4x lending cap would be great – if anything it should be lower. But the consequences of it being introduced today would be severe, and dramatically worse if population growth continued at the rate you want it to.
Above you said my idea of limiting lending to 4 x a person’s salary would “Catastrophically [crash] the property market”.
Hong Kong is an island state of over 7.5m people.
Sydney is a sprawling city of barely 5m.
There is no supply issue. There is an issue with a few people owning multiple properties. Any new ‘supply’ will just be bought up by investors with tenants left to languish under some of the worst rental laws on the planet.
Australian housing has to be hands down one of the worst managed resources on the planet (after Australia sun and solar).
People = jobs. Bringing in migrants to fill jobs only makes more jobs – while politicians love to boast of the increased GDP and employers love to keep down wages by trying to keep migrant numbers above job numbers.
So consider what would happen if migrant numbers were limited. Full employment. Healthy, safe conditions. Wages and profits in balance. Fewer people trying to live in poverty with all its evils, and fewer billionaires maybe. Businesses investing in productivity, R&D, intelligence, valueing their employees. Cheaper housing.
(Then throw in a little more regulation of the mono/duo/quadopolies, and a saner tax landscape…. but that would be icing the cake.)
People = people.
The solution to problems facing people is not less people.
I left Sydney to live in Canberra in late 1994. The main reason was the superior taste of Canberra’s drinking water. The secondary reason was that Sydney was quickly becoming a refuse dump for mass home apartment buildings and higher migration numbers. I went to visit Sydney earlier this year to see some old friends from the past (which was a positive in itself). I have to say though, the city is an even bigger dump than it was in 1994. Oh, and that viewpoint also applies to its worsening drinking water supply. Cheers.
Good article Benjamin, and I have to say that I don’t think State Governments of either stripe have really got to grips with the issue. It is as you say an economic / economic development issue as much as a social issue. I don’t really see any answer other than the State recommencing mass public housing development and perhaps restricting certain housing stock to under 35s (such as over 55s are already catered for).
Surely this should have been subtitled No Sh1t Sherlock! and signed by Capt.Obvious?