02.01.2023 Local News

Why We Can’t Compare Today’s House Prices With Earlier Ones

Why We Can’t Compare Today’s House Prices With Earlier Ones

Property prices have risen 550% in 30 years but are we selling the same thing?

Between 1993 and 2022, Sydney’s median house price rose by around 550% – a staggering figure at first glance. But we don’t think this number tells the whole story of how Sydney’s housing market has changed.

Housing stock is now entirely different

One of the key reasons for this is that Sydney’s housing stock has changed markedly over the past three decades. We’re simply not selling the same properties that we were back in 1993.

In the 1990s, vendors were still often listing properties in ‘original’ condition. Today, an untouched property is much more difficult to find in Sydney’s Eastern Suburbs.

When original homes have come to market in the past decade or so, the new owners have most often bought them with a view to carrying out a major renovation or even performing a knockdown/rebuild.

And, when they eventually sell, they’re not really selling the same property at all.

Today’s homes are often better appointed, more liveable and much bigger. For example, the size of the average Australian house has grown by around 150% between 1950 and today. Even over the past five years, Domain data for Bronte shows that the proportion of four-bedroom homes sold compared to three-bedroom homes has grown rapidly.

The owners have also often invested hundreds of thousands of dollars making these alterations, and today’s prices also often reflect the added cost of that renovation.

So, in many ways comparing historical house prices data isn’t comparing apples with apples.

Scarcity value

At the same time as our houses are getting bigger and becoming better appointed, we’re also seeing more apartments. Census data reveals that between 2001 and 2021, a total of 1,348 new dwellings were added to the housing stock in Woollahra Municipality, and the vast majority of these were apartments.

Contrary to what some homeowners believe, growth in apartments doesn’t necessarily have a negative effect on house prices in an area. Very often, the opposite is true. Apartments bring in new residents, many of whom set down roots in the area and want to stay there throughout their property journey. This generates added demand for larger properties – ie houses – in the area, sending house prices upwards. This is reflected by the fact that house prices have grown substantially faster than unit prices over the past 30 years. Three decades ago, the median house and apartment values were just 15% apart (the median unit value was $163,545, while the median house price was $188,050). Today, Sydney’s median house price is 58% higher than its median apartment price.

The added benefit of apartments is that they also offer somewhere local for downsizers to move into once they decide to sell the family home.

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Population growth generating more demand

Of course, the reason we’re building more dwellings is that we really do need more of them. Sydney’s population is growing. In 1993, the city’s population was 3,745,000. Now it is 5,121,000 – an increase of almost 37%.

For every property that comes to market, there should logically be close to 40% more interest in it (although, of course, this won’t be evenly distributed). In other words, if a home had five genuinely interested parties in 1993, you’d now expect it to have seven.

Full-time average weekly earnings and mortgage costs

Finally, it’s also worth noting that back in 1993, people were earning a lot less money.

In May 1993, average full-time adult earnings were $597.80 a week ($31,085 a year). This compares with $1,835.20 a week ($95,430.40) in May 2022.

While this rise of around 307% doesn’t account for property prices rising by 550%, it does go some way to explaining it, especially when it’s combined with reductions in the cost of servicing a mortgage.

In 1993, when people bought a Sydney house for its median value of $188,050, interest rates were 9.92%. If they were to take out a 30-year principal and interest home loan for 80% of the house’s value, they would be paying $302 a week, or 50.5% of full-time weekly earnings. If they were to take out the same loan for 80% of the median apartment value, they would be paying $263 a week, or 44% of weekly full-time earnings.

Today, if someone bought a Sydney house for its median value of $1,221 and took out a 30-year home loan at the average new home loan interest rate of 4.79%, they would be paying $1,181 a week – or 64.4% of the median full-time earnings. However, if they were to buy the median apartment for $772,807 with the same 80% home loan, they would be paying just $747 a week, or 40.7% of median full-time earnings.

What this shows…

While it’s true that servicing a mortgage on the median house price consumes a greater proportion of someone’s income today than it did 30 years ago, the reality is that the home they buy is likely to be much grander and more luxurious than a comparable property in 1993.

Meanwhile, the fact that servicing a home loan on the median apartments has become comparatively much easier shows it could actually be easier to enter the property market today than in 1993 – so long, of course, as you can save a deposit and you’re prepared to live in a different style of home.

Want more?

If you’re thinking about buying or selling property in the Eastern Suburbs, don’t hesitate to get in touch with our team today.