04.20.2022 Buying Tips

Housing Affordability In Sydney’s Eastern Suburbs

Housing Affordability In Sydney’s Eastern Suburbs

Affordable property and Sydney’s eastern suburbs aren’t words that are seen together too often.

But are things getting better or worse?

As we approach another election, housing affordability is becoming a more reported issue. Over the past two years we have seen it making headlines in regional areas that have skyrocketed in value thanks to an exodus from the cities over the pandemic and a desire for “lifestyle” properties. Locals born and bred in Byron Bay and other seaside towns across the country can no longer afford to live there. And, while the capital gains are welcome for those who already own property, it’s an issue we also see in Sydney’s East.

At the beginning of 2022, property prices in Sydney’s Eastern Suburbs reached all new highs. We explore the nuanced reality behind affordability in Sydney’s East.

A year and a half of rising prices

This has been an almost unparalleled period of house price rises – not only in Sydney’s East but around the country. In May 2020, Australia’s median dwelling price stood at $557,818 according to CoreLogic. By March 2022, it had risen to $738,975 – a gain of almost 32.5%. Here in Sydney, the price of property has been rising even stronger still. The median house price in our city has lifted from $1,016,726 in March 2020 to $1,403,154 – a 38% increase.

Some of the real beneficiaries of this trend have been our suburbs, especially those near the beach. In Bronte, for instance, the median house price has risen from $3.535 million to $5.6 million between 2019 and today – or 58.4%. That’s an incredible gain for any asset.

Of course, the most basic reason for the rising market is that we’ve had close to a year and a half of demand outstripping supply. After all, property is only ever worth what people will pay for it and when there are more people competing over fewer properties – as has been the case lately – prices will naturally go up.

But why have they been paying so much for it lately?

Interest rates and affordability

As we wrote at the start of 2020, there is often a strong connection between house price growth and interest rates. When interest rates go down, people can afford to borrow more – so long, of course, as their income doesn’t go down too. In November 2020, the RBA cut the official cash rate to an unprecedented 0.1%. Banks followed by reducing their fixed interest rates to as low as 2%. This meant people could borrow a lot more and many were prepared to do so. In fact, the average mortgage in NSW lifted by almost 20% between November 2020 and 2021, according to ABS data.

But at the same time, that didn’t necessarily make things less affordable. Borrowing $1 million when interest rates are 2% is actually usually cheaper than borrowing $750,000 when interest rates are 5%. The problem, of course, is when interest rates rise – which they look almost certain to do this year.

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The market has changed in many ways

But interest rates are only one part of the equation. What we find just as interesting is that there have been fewer properties coming to market over the past couple of years than we ever remember.

SQM data bears this out, revealing that right across Sydney, there were almost 25% fewer listings in November 2021 than there were in November 2019 – or some 10,000 properties. Without a corresponding decline in buyers, prices will naturally get pushed higher.

Another interesting factor that’s less observed in the media is that the properties selling today aren’t always the same properties that were for sale a few years ago. We don’t have to tell you that there have been some seriously major renovations taking place right across the eastern suburbs over the past few years. What was a humble three bedroom family home in 2017 is now just as likely to be a spacious five-bedroom retreat.

The effect this has on affordability is two-fold: it pushes the price of that property higher but then it also means there are fewer three-bedroom properties for sale, so competition for these also heats up – pushing prices higher in that market segment too.

A growing income gap

One factor not mentioned too often in the topic of affordability is that Australia’s incomes have not been rising in unison, meaning the gap between rich and poor is opening wider. This phenomenon was already around prior to the pandemic. Between 2015/6 and 2017/8, the income of the top 20% compared to the bottom 20% lifted from five-to-one to six-to-one, according to UNSW research.

The effects of COVID-19 have pushed the income and wealth gaps to new heights and have devastated some sectors while leaving others untouched, or even strengthening them.
This too can have real effects on the market – making some segments more affordable and others less affordable. Here in the Eastern Suburbs, we’ve noticed that those working in industries such as health, professional services, tech and other industries often have more to spend than they once did. Conversely, those in hospitality and the arts have often been doing it tough.

Housing affordability is a complex issue and one that requires more than simply observing whether house prices are going up or down.

Want more?

If you’d like to find out more about property in the eastern suburbs, get in touch with our team today.