Is Australian housing really that over priced

I’m writing this blog entry from an internet cafe in Riga, Latvia as I am lucky enough to be on a month’s holiday.  My previous stop was St Petersburg and my tour guide provided a very interesting insight into the local property market which I thought I’d share with you.  Of course these are just details which I received from her but she seemed fairly knowledgeable and provides a good analysis.

St Petersburg is a city of around 5 million people let’s say it’s similar to the size of Sydney.  No one in St Petersburg lives in a house; in fact I didn’t see houses until I was 40 kilometers outside of the city.

On our tour we got on to the subject of housing, residents of St Petersburg inherently live in units and I was advised that men on average earn around $1,000 US a month ($12,000/year) whilst women earn $600US/month ($6,000/year).  Whilst I don’t have the figures with me, let’s say people in Sydney earn on average $4,167/month ($50,000/year).

Now I was advised that the average cost of a two room (not bedroom, room) unit was $200,000 US.  The unit (which is the type of unit my tour guide lived in with her husband and daughter) is around 35sqm, of which 5 sqm is kitchen and the rest is one room for her daughter and one room for her and her husband.  Remember 35 sqm, which is like living in Australian student accommodation.  The bed gets folded up and put away in the morning and the adult’s room is used for entertaining when guests visit.  With an average yearly wage of $12,000, the cost of a two room unit is almost 17 times the average yearly wage in St Petersburg.  Obviously those with more children may need more rooms and the price only goes up for additional rooms.  My tour guide was lucky enough that she inherited the unit from her grandparents.

Now looking at Sydney, the median unit value sits at $443,120 and the representative median unit certainly gives you much more than 2 rooms and a 5sqm kitchen.  In fact a quick look on www.realestate.com.au shows that you can get a 52sqm 1 bed, 1 bath unit in Pyrmont with a 16sqm lock up garage for that price.  Pyrmont, right next to the CBD whilst in St Petersburg you are living 10 – 15km out of the city centre.  Moving 10-15kms out of Sydney in say, Rockdale, you get a 2 bed, 2 bath unit with a car park in a brand new complex with a pool for this price.  Much better, bigger and nicer than the 2 room unit built during Communist times in St Petersburg.

It’s also important to realise that the median value of a unit in Sydney is 8.8 times the average annual income.  This is still a lot, but much less than the 17 times the annual income in St Petersburg.  I think it’s also fair to say that the quality of life and prospects of jobs in Sydney is significantly greater than the prospects within Russia (although St Petersburg is a beautiful city).

This phenomenon is not just inherent in Russia, throughout Europe, few have the luxury of living in houses anywhere close to the city centres as we enjoy in Australia and the cost of buying units in the inner city is such that most end up life time renters.

Travelling overseas makes you realise that we really are the lucky country and instead of complaining about property prices look at how lucky we are to be able to live in the manner we do, in the properties we do.  Although it is tough, property ownership is an achievable dream in Australia one which does take sacrifice. For many in Europe and in particular Eastern Europe, home ownership is just a dream which they will struggle to ever fulfill.  It is only those lucky enough to inherit a property or the upper class of society who will enjoy the benefits of home ownership.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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11 Responses to Is Australian housing really that over priced

  1. franklyn williams October 19, 2009 at 9:55 am #

    your comments on the price of units in St petersbourgh and sydney is like comparing apples and oranges .
    Our house prices are 6 times the average income to purchase compared to the US which is 3.5 times. I have to drive around melbourne to see why house prices are so high. I hope others have noticed this too ,market gardens in the middle of prime real estate . people growing cabbages and potatoes 15 kms away from the city whilst the suburban growth boundaries are expanding 50 to 70 kms from the city with no infrastructure or transport .
    In a continent with only 20 million people we are paying a high price for accomadation.

  2. Jimmy October 21, 2009 at 2:16 pm #

    I agree with the post. I’m from London originally and have lived in Sydney and Adelaide for the last 4 years. For the same price of my two bedroom ex-council flat (it really wasn’t much) in a central but fairly rough borough I can afford to buy a 4 bedroomed house 8kms from Adelaide city centre or a 2 bedroomed flat in Bondi with seaviews.

    I’m earning similar money to what I was in London and whilst interest rates in Australia do tend to be a couple of percent higher the mortgage repayments are easily serviceable.

    I think the media in Aus has a lot to answer for and only ever reports negative data. As thats what people want to read obviously. Affordability is not the issue for home ownership. That is not why people struggle to get onto the property ladder. I’d say its more to do with tighter lending conditions in this country i.e. you have to have a 20% deposit, say $80k for a $400k property. Thats a lot of savings.

    When I bought my first property in London I had to put down a 10% deposit. Something that was a struggle but certainly achievable.

  3. Steve October 23, 2009 at 9:42 am #

    Interesting article but the main issue here is that incomes aren’t rising at the rate that property values are. If you look at the rise in housing prices from 1987 to 2009 in the US and Australia it makes for frightening reading (incidently the numbers are 180% for the US and 250% for Australia). In 1950 the average Australian paid 3 times salary for an average home, by 1970 it was closer to 5 times, in 2009 we are paying on average 9 times. Perhaps someone can tell me what I’m missing here, but the aspiration to own property in this country is slipping from the grasp of younger people ever so quickly. Credit conditions will get more difficult before they get easier. The increase in deposit requirements for the banks is only the start. Its interesting that so much has been made about the FHOG and its ability to rescue property prices from freefalling into a chasm of despair (given our love affair with property and the fact that most of us have our personal wealth tied up in our homes). The fact this has also lead to an increase in interest rates (yes people property prices do fuel inflation) which will see many of those who have just bought struggle to keep their new purchase, beggars belief. If someone has to rely on a government funded grant (and generous at that) to get into a property it suggests that something is fundamentally wrong with our ability to save. Something has to give as sooner than later or property ownership will be the privilege of the wealthy (or high income earner) or those that are lucky enough to inherit from a kindly grandparent.

  4. Stuart October 23, 2009 at 12:45 pm #

    Great post. Yes, property is getting harder to get into, but that doesn’t mean it’s unachievable, whilst it is unachievable in so many other western countries. Is property getting more expensive sometimes, although we are starting to see more and more innovation in housing type in Australia. I still don’t believe our property prices reflect the lifestyle, security, economic stability and general infrastructure quality we have when compared to the rest of the world. Australia is undeniably the best place to live, and still on a world scale one of the more affordable.

  5. Chuck October 23, 2009 at 1:00 pm #

    Steve, you’re spot on. And Franklyn, also on the money. A comparison between St Petersburg property prices and Sydney’s, while interesting, is about as meaningful as a comparison between La Paz’s property prices and ours. So what? All I know for sure is, my mortgage for the Sydney city s******e I inhabit is killing me – and that’s not because the media has told me it’s killing me, Jimmy. My bank statements tell me that. All this is despite the fact the real estate agent with the thick accent, from St Petersburg I think, told me that from her experience, the home was an unrepeatable bargain, and “highly affordable”. I now presume she meant, to Russian mafia.

  6. rod October 23, 2009 at 1:28 pm #

    Steve, you asked what am I missing? One part of the answer is the standard of home being build. My parents home in what was then the outer suburbs was two bedrooms, combined kitchen/ dining room lounge room combined toilet/bathroom no car accomodation. Total floor area probably 85-90 sp mtrs.
    Look at what the average home is today everything is at least double of what was the accepted average back then.
    By the way I am 61. I have seen this cycle happen aopoximatelly every 11-12 years. Everytime it happens the same doom and gloom gets published. Yet we have always had one of the highest levels of home ownership in the world. Even today. But as everyone has said, home ownership does take sacrifice. Always has and always will.

  7. Steve October 23, 2009 at 1:34 pm #

    Interesting…until you spend 5 minutes researching and discover that in 2008 the average income in St. Petersburg was in fact $33,280 (according to the govt.) – brining the price ratio down under 7 years income. Maybe we shouldn’t rely on financial data from a tour guide…

    • RP Data Research October 23, 2009 at 3:23 pm #

      Hi Everyone

      Sorry I’ve taken so long to respond but I’m still on holidays.

      Steve, as you can understand I didn’t seek out official Government data it was more just an opinion piece however I can direct you to this website: http://www.zimbio.com/Russia/articles/448/Russia+Average+Wages+Growing+Slowly I would advise I would be a little sceptical about official data from that Government and that is why I used word on the street. The following website also provides further insight into the areas of employment within the country http://www.gks.ru/bgd/regl/b09_12/IssWWW.exe/stg/d01/06-04.htm, as you can see it is quite varied.

      In saying this the ABS records the average Australian income at around $50,000 to $55,000 annually yet how many people do you know that are on that sort of money (teachers and some Government employees are all I can think of). I’m not saying either are incorrect but what are the numbers truly representative of?

      The point was more what they are paying and the way in which we they live compared to what we pay and how we live which is clearly infinately better.

      Although it remains tough to get into the housing market because of prices and strenuous deposit demands by banks it certainly is still achievable with sacrifice and the quality and location of what is available is unquestionably better than what you can buy in many other parts of the world.

  8. Sam October 27, 2009 at 5:01 pm #

    I don’t know if you guys look at 90 day bill rate or the yields on government bonds…but whats been happening for the past few months is that the 30 day and 90 day bill rates are increasing at a rate not seen before. The market is pricing in huge increases in interest rates…..

    Im no saying thats all doom and gloom for the property market. By the way…..St Peterburg has loads of foreign investors that will pay anything to get a hold in their property market…..if sydneys properties are bing snatched by foreign investors…house prices will never ever go down…

    anyways back to the interest rates…if the rates rise rapidly….theres gonna be some sort of reaction…..from 2000 till the recent rise in interest rates….the average RBA cash rate is 5.37% …add another 2.80 the banks put on top….and another 1 % of their own increase in the mortgage rates

    and voila….rates over 9% ….thats not 6 % or 7%…thats a massive 9 % …..9% on your mortgage…9%! thats assuming the RBA wont increase rates above 5.5%…..

    with interest rates at 9%….rpdata please write an article brainwashing people into believing they will afford 9 % on their mortgages…..9%!

    • Paul September 14, 2012 at 5:55 pm #

      Hi sam, Why are you making a big deal about int rates @ 9%. Go back a few years and they were 18%, YES 18%. Small bus was paying 26% on over draghts and 21% for business loans.

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