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01 March 2016

Property Report – March 2016

Affordability is Australia’s most over-rated issue.

by Terry Ryder.
creator of

Introduction: Affordability is Australia’s most over-rated issue
The issue of affordability has become the biggest furphy in public debate in Australia.

It is a constant in daily media and it has become a favourite topic for posturing politicians.

Two very long and expensive federal inquiries have been held, allowing ambitious politicians to grandstand in front of television cameras – but nothing meaningful has changed. The Federal Government has targeted wealthy foreign investors have bought mansions in Sydney and Melbourne, apparently illegally, but that won’t make a single house cheaper in the suburbs of our capital cities.

Property Report 2016 Image

Major taxation policy is being framed by the big parties around this subject but none of it addresses the real issues, such as the reality that over 40% of the cost of a new house-and-land package is taxation. In other words, politicians themselves are the biggest problem but they are quick to point the finger of blame at unpopular minorities like foreign investors.

The bottom line in this issue is that Australia does not have the “affordability crisis” that is claimed almost daily in mainstream media. In all of our cities and throughout regional Australia, buyers can find affordable real estate.

In this report, I outline the truth about housing affordability across Australia and in each of our major markets – and suggest places buyers could consider to buy both affordability and well, from the viewpoint of future growth.

For analysis of markets nationwide, click on the topics below …

National Overview How about some truth and rationality in the affordability debate.
Adelaide & SA Plenty of very affordable options in Adelaide.
Brisbane & QLD Brisbane most affordable areas are leading growth markets.
Canberra & ACT The national capital is the Goldilocks of real estate.
Darwin & NT Remoteness and scarcity has made Darwin expensive.
Hobart & TAS Our cheapest city now underpinned by a growth economy.
Melbourne & VIC Melbourne passes Sydney, but plenty of attainable options.
Perth & WA Perth’s decline will provide plenty of good buying options
Sydney & NSW Sydney presents the toughest task when seeking cheaper options.
Conclusion Most Australians are comfortable with their mortgages.


National Overview
How about some truth and rationality in the affordability debate

If you regularly tune into mainstream media, you have every right to be confused about housing affordability. Coverage of real estate is awash with misinformation, but nowhere is the reportage more emotive, unbalanced, sensationalised and inaccurate that on the subject of affordability.

Media is addicted to the storyline that claims “the Great Australian Dream is dead”. Journalists love to write that no one can afford to buy anymore. People and organisations that seek media attention can easily generate publicity by making sensational claims about affordability. If an organisation with a political objective publishes a report claiming we have the world’s most unaffordable housing, media will accept it as truth and publish it without question.

The problem is exacerbated by this fact: much of our major media emanates from Sydney. Our largest and most expensive city recently had a three-year price boom, lifting median prices to $885,000 for houses and $665,000 for units. Some writers and commentators, in their efforts to sensationalise the issue, quote a Sydney median of “more than $1 million” and move from there to the claim that no one can afford to buy anymore – anywhere in Australia.

The truth is somewhat different. Here’s the reality of housing affordability in Australia.

Two major affordability indexes are published quarterly, one by the Commonwealth Bank in association with the Housing Industry Association, and the other by Adelaide Bank in conjunction with the Real Estate Institute of Australia. Both find that, on average across Australia, affordability is at healthy levels – especially if you remove Sydney from the equation.

To keep matters simple, I’ll refer to the CommBank affordability index (the other index makes similar findings). This finds that housing affordability is considerably better than it was five years ago, as an average across the nation.

There are three components to the affordability index: house prices, incomes and interest rates. Affordability generally has improved over the past five years because interest rates have fallen to record low levels, average incomes have risen gradually and, outside of Sydney and some parts of Melbourne, there has been only minor changes in house prices. In some major cities, including Perth and Darwin, prices have reduced – while in others, like Canberra, Hobart, Adelaide and Brisbane, there has been little in the way of house price rises.

Sydney-based journalists, economists and commentators appear to believe Australia has had a major national property boom – but, in reality, most of the 20 million Australians who live outside Sydney have not witnessed a property boom any time in the past five years.

Sydney, following three years of big price growth, is the only jurisdiction that doesn’t have a demonstrably better affordability situation that it did in 2010. Everywhere else in Australia does. Even Sydney is marginally better off than in 2010. Many parts of Australia have a better affordability equation than 10 years ago.

There were improvements in 2015 in many parts of the nation. Jurisdictions which have a better affordability position now than 12 months ago include Perth (11% better than a year ago), Darwin (13.5% better), Hobart (7% better), regional WA (13% better), regional NSW, regional South Australia, regional Tasmania (6% better) and regional NT (10% better).

Affordability is essentially unchanged in Brisbane, regional Queensland and regional Victoria, compared to a year ago.

Sydney’s position is 4.5% less favourable, Melbourne 7.6% less, Canberra’s 9% less and Adelaide 2.6% less. But in each of those locations, affordability remains better than five years ago, even in Sydney (just).

An annual report titled Demographia claims Australia has the second most unaffordable housing in the world. The report, frankly, is rubbish. Indeed, I would go further and declare that report to be fraudulent.

Here’s why. The report compares Australia to only seven other nations, therefore has no basis to make any claims about where Australia sits in the global pecking order. The report does not include anywhere in Europe or the Middle East. It completely ignores South America and Africa, and includes only a small number of Asian nations. There are almost 200 nations in the world but this report surveys only seven.

The report declares Sydney the second most unaffordable city for housing in the world but the survey does not include Paris, Monaco, Geneva, Zurich, Berlin, Frankfurt, Copenhagen, Amsterdam or Stockholm, all very expensive places for real estate.

Given that the report is not about how high prices are, but their relationship to incomes, it may well be the least affordable place in the world (relative to local incomes) is somewhere in Africa or Latin America. But no one has ever conducted a truly global study on housing affordability.

The report’s sections on Australia uses 2015 prices but 2011 incomes, therefore the affordability calculation is based on the latest prices but incomes that are four years out of date.

Worst of all, the report sets the affordability bar so low that it finds all of Australia is unaffordable. And that is exactly what it sets out to achieve. The report is a political document from a developer lobby group which campaigns against government regulation of developer activity. It argues that regulating development makes its unaffordable.

To support this argument, it has decreed that anywhere with a median multiple above three is unaffordable. If the average income is $100,000 and the average house costs $300,000, that’s a median multiple of 3. If the average income is $100,000 and the average house costs $400,000, that’s a median multiple of 4.

The Demographia report says that anywhere with a median multiple of 3.1 is unaffordable. So if you live in Warrnambool in Victoria, where the median price is $320,000, and you earn $100,000 a year, you can’t afford to buy the average Warrnambool house. It’s unaffordable because the median multiple is 3.2.  And yet anyone with that level of income would easily get a loan from any lender in Australia to buy a home for $320,000 and would have few problems with the monthly payments.

Yes, you’re right, it’s ludicrous. But media across Australia treated this as a credible research report and published headlines declaring we have the world’s most unaffordable dwellings except for Hong Kong.

According to this report, the home I own is catastrophically unaffordable. At the time I bought it, the median multiple was around 6. Yet I readily got a loan and have been extremely comfortable with the repayments.

Like 75% of households with mortgages in Australia, I’m ahead on my repayments for that property. The average situation across the nation is two years ahead on mortgage repayments. Surveys indicate that even first-home buyers are very comfortable with their mortgages and most could cope with four interest rate rises (of 0.25% each) and still be comfortable.

Mortgage delinquencies (those behind on their repayments) are at record lows. I write more about that in the “Conclusion” at the end of this report.

Keep all of this in mind next time you read about “the housing affordability crisis”.

Adelaide and South Australia
Plenty of very affordable options in Adelaide

The Housing Affordability Index has shown major improvement in Adelaide and South Australia over the past five years. This is despite a 1.7% decline in Adelaide in the past 12 months, caused primarily by a small decline in average weekly earnings and the increase in mortgage interest rates by major lenders in November.

Adelaide has the cheapest homes among the capital cities except for Hobart. The city’s median house price is $440,000 while the median for apartments is $355,000. This means half of all houses sold are worth less than $440,000 and half of all apartments are below $355,000.

And around Adelaide there are plenty of affordable suburbs to fit most budgets. A number of them are precincts where sales momentum has been rising in the past 12 months or so, suggesting price growth will follow.

The leading precinct in the Adelaide metropolitan area in terms of rising sales activity is (as has often been the case in the past year or so) the Onkaparinga LGA is the far south. This area is benefiting from improvements to road and rail links – and has a number of appealing lifestyle elements, including seaside villages and a noted wine district.

Suburbs include Seaford, where the median house price is $345,000, while nearby Seaford Meadows is $370,000 and Seaford Rise is $390,000 (after a 9% rise in the past year).

Another growth precinct is the area encompassing the Salisbury and Playford LGAs in the far north of the metropolitan area. They include the Elizabeth suburbs (eight suburbs with Elizabeth in the name), many of which have median house prices below $200,000. The deareset of them has a median price of $240,000. Most of them have median rental yields between 6.3% and 7.1%.

Downmarket yes, but certainly affordable, with above average rental returns – and most of them have recorded price growth in the past year.

This precinct also includes the various Salisbury suburbs, where median house prices are generally in the mid-to-high $200,000s and yields are between 5.5% and 6.2%. And there’s been solid price growth in the past year, including in Salisbury Downs (up 9%), Salisbury Park (up 8%) and Salisbury Heights (up 12%).

Another feature of Adelaide is the array of middle-market areas with good locations, character housing and attractive pricing. Many are nicely located in the precinct between the CBD and the beaches. They tend have homes prices in the $500,000s and $600,000s. Homes of that quality and location would be well above $1 million in both Melbourne and Sydney.

Outside of Adelaide, most of the key regional centres have cheap real estate. Median house prices include $230,000 in Murray Bridge, $240,000 in Mount Gambier, $320,000 in Victor Harbor, $280,000 in Whyalla (currently a depressed market to be avoided) and $310,000 in Port Lincoln.

Brisbane and Queensland
Brisbane most affordable precincts are the leading growth markets

If you’re looking for affordable homes in the Brisbane metropolitan area, there are two pieces of good news. One, there are plenty of solid areas with affordable dwellings – and two, they’re all leading areas in terms of rising sales activity, which means they’re coming into a period of price growth.

The Brisbane market has had elevated activity for two years, without producing Sydney-style price growth across the board (although some pockets have had double-digit growth).

The improvement started in the inner-city and rippled out to the middle-ring suburbs both north and south of the Brisbane CBD. But in the past 12 months, the leading precinct for sales activity has been Logan City, in the far south of the metropolitan area.

Now the Moreton Bay Region in the far south is challenging Logan City for the No.1 spot. And Ipswich City in the far south-west has also put its hand up.

All three areas – the Logan, Moreton Bay and Ipswich municipalities – are good fits for one of the power combinations of real estate: affordability + infrastructure + jobs nodes = price growth.

Many of the suburbs in these precincts have median house prices in the $300,000s, with some in the $200,000s. Small units are in the $200,000s.

Logan City forms the urban bridge between Brisbane City and Gold Coast City. Three major motorways – the Pacific, Gateway and Logan motorways – intersect in Logan City and the commuter train link between Brisbane and the Gold Coast snakes through this municipality.

There are lots of major retail centres, including an Ikea Superstore, and plenty of jobs nodes. The major tourist theme parks including Dreamworld and Movieworld are just done the road.

The best places to consider are the older established suburbs with train stations and proximity to the motorways, retail centres, schools and jobs nodes – rather than new development areas inland, with no access to rail.

Moreton Bay Region is the northern mirror image of Logan City.

There are plenty of affordable apartments to be found throughout the Brisbane metropolitan area, but buyers need to avoid the inner-city market where vacancies are already high and destined to become much higher with high levels of new apartments under construction or being marketed off-the-plan. Most of being solid to distant investors, a clear signal to steer clear.

The Housing Affordability Index indicates that affordability has changed little in the past 12 months, either for Brisbane or for regional Queensland. And both are considerably better than they were five years ago.

There’s plenty of good value buying in regional Queensland. One opportunity that stands out is the Cairns unit market, where prices have dropped in recent years because of oversupply and are now attractively priced, with yields often above 7% (the highest genuine rental yields available anywhere in Australia).

The Cairns market is on a growth path, thanks for major spending on infrastructure, efforts by local civic leaders to diversify the economy and a strong tourism industry. The low Australian dollar is bringing in lots of visitors from overseas.

Investors should keep on eye on markets that are currently in decline, either because of oversupply, or the decline in the resources sector, or the growing use of fly-in-fly-out resources workers staying in temporary accommodation camps, or some combination of those factors. There will come a time when those markets bottom and the buying will be good, with an eye to future growth.

Mackay and Gladstone both fall into this category. I’m not suggesting that now is the right time to buy there, but that some time in the next year or so, the bottom of the cycle will be reached and prices will be attractively low.

Those two cities both have strong futures, but investors need to remember that they will always be volatile markets, because of their links to the resources sector. People who value safety and low-risk should never buy in these kinds of markets.

Canberra and the ACT
The national capital is the Goldilocks of real estate

Canberra has never been a cheap city to buy property. Nor is it overly expensive. That’s in keeping with its status long-term as the Goldilocks of capital city real estate – not too hot, not too cold, just right. It’s a very even market, seldom producing major highs or lows.

There were price rises late in 2015 that caused affordability to drop, although it remains a lot better than five years ago.

But there is an evenness in the price of housing. For example, there are no suburbs with median house prices below $400,000 – unlike in Brisbane, Adelaide and Hobart, which provide plenty of options in the cheaper price brackets.

There are 20 suburbs where median house prices are currently between $400,000 and $500,000, 24 priced between $500,000 and $600,000 and 25 suburbs between $600,000 and $800,000, as well as 15 expensive suburbs with median house prices above $800,000.

Essentially, most of Canberra is middle market.

For cheaper real estate, you need to buy apartments. It’s quite a weak market at the moment because there has been an oversupply of units in recent years and there has been a drop in sales volumes. The largest markets, Belconnen and Braddon, have recorded decreases in median prices in the past year.

If we examine the five-year growth averages of suburbs with apartment markets, many of them are in the negative – which means the current median unit price is lower than five years ago.

We can use Braddon as an example of the Canberra unit market. It’s one of the biggest suburbs for unit sales, have recorded 206 transactions at a median price of $430,000 in the past year. The median dropped 1% in 2015 and declined an average of 1% per year over the past five years.

In Belconnen, currently the largest unit market with 210 sales in the past year at a median price of $390,000, the median dropped 3% in 2015 and growth in the past five years has averaged just 0.2% per year.

So generally speaking the Canberra market has been going nowhere in recent years, weighted down by over-building by developers, which coincided with a drop in demand because of downsizing of the federal public service.

The bulk of the apartment market has pricing in the $300,000 and $400,000 range. There are 28 with unit markets with median prices in the range. Another 22 suburbs have median prices between $400,000 and$500,000 and there are 11 suburbs with medians above $500,000.

It’s all rather uninspiring, really, but that’s Canberra for you.

Darwin and the Northern Territory
Remoteness, scarcity has made Darwin expensive, but affordability has improved

Darwin has been rather an expensive city, both for renting and for purchasing. But it’s become a lot more affordable because of recent declines in both rents and prices.

In fact, Darwin has shown the biggest improvement in affordability in 2015, with a 13.5% gain, according to the Housing Affordability Index. There have otherwise been few major fluctuations in affordability over the past five years.

In regional Northern Territory, affordability improved 10% in 2015 and is noticeably better than five years ago. This means Alice Springs, Katherine and Tennant Creek, there being few other population centres of any size outside of those three.

Despite that recent improvement in affordability, there are few cheap housing markets in Darwin and the satellite city of Palmerston. There’s nothing below $400,000 and just three suburbs between $400,000 and $500,000.

In this regard, Darwin is rather like Canberra. Most of the city is middle market. There are 18 suburbs with median house prices between $500,000 and $600,000 in the Darwin and Palmerston markets and several which are above $600,000.

You need to buy units to access anything reasonably cheap. The Darwin unit market has declined recently through oversupply (again, very similar to Canberra), but it’s still quite an expensive market.

Of 24 Darwin area suburbs with unit markets, only five have median prices below $400,000. There are eight markets between $400,000 and $500,00 and 11 with median prices above $500,000.

Darwin City is the biggest unit market. It made 355 sales in 2015 at a median price of $505,000, which represented an annual decline of 6%. Over the past five years, the median price has decreased at the rate of 1.7% per year.

Despite persistent decline, the median price remains above $500,000, compared with $380,000 in the Perth CBD, $410,00 in the Adelaide CBD and $480,000 in the Brisbane CBD. Remoteness and a general shortage of development land tend to make Darwin expensive.

The cheapest unit market is Yarrawonga in the City of Palmerston, where last year there were 43 unit sales at a median price of $245,000.

If you sniff around websites like, you can find units below $300,000, especially in the Palmerston area, but they are quite scarce. A lot more common are units in the low-to-mid $300,000s in that precinct – and that, in Darwin terms, is affordable.

Generally, Darwin is a market to watch because prices are falling, but longer-term this has been a strong growth market. Like all markets, it’s going through a down phase. When it reaches bottom, the buying will be good (perhaps in the second half of 2016).

Hobart and Tasmania
Nation’s cheapest capital city is now underpinned by a growth economy

Hobart has always been the cheapest of the capital cities but nobody has wanted to buy there because it was perceived as a place with no growth. Indeed, Hobart has been seen as the capital city of a basket case economy.

For many years that has been true. But it is true no longer. The Tasmanian economy is growing again. Indeed, it is leading the nation on some parameters.

There have been a series of national surveys and economic reviews which all agree on one thing: Tasmania is starting to pump. Here’s what some of those reports have said:

  1. The Tasmanian economy is well and truly on the rise  – Deloitte Access Economics.
  2. The renewed signs of job creation are pleasing – MyState.
  3. Business confidence is at +12 — three times higher than the next best states – NAB.
  4. Tasmania leads the nation on business confidence – Sensis.
  5. A falling jobless rate and a rising participation rate suggest the fundamentals are improving – NAB.


A number of economic sectors are now travelling strongly in Tasmania, including tourism, agriculture, manufacturing, forestry and construction. The lower Australian dollar has helped a number of those sectors, especially tourism, and there has been proactive action from the State Government to regenerate the economy.

This flows through into demand for real estate.

Home sales across Tasmania were up 12% in 2015. This was the third consecutive year of growing sales volumes – but still 40% blow the levels of the 2003/2004 boom.

The average sale price in 2015 in $309,000 shows how affordable Tasmania is. The Hobart median house price is $330,000, which means half of all sales are below that price.

In many ways, the steady improvement in Tasmanian real estate markets feels similar to 2003, the last time there was a genuine national property boom. Back then, the boom in the mainland cities rippled across Bass Strait, with investors noticing how cheap Tasmanian real estate was and how attractively high the rental yields were.

There are similar possibilities now. Sydney and, to a lesser degree, Melbourne (which is well connected to Tasmania, including with the major ferry services) have had strong price growth – and investors finding the big city values too rich may look at Hobart.

They will notice that not only are prices half those big city levels, but that Hobart has the highest rental yields among the state and territory capital cities, having overtaken Darwin in that regard.

There are plenty of suburbs in Hobart with median house prices in the $200,000s, on both side of the River Derwent.

One of the best affordable precincts in the Glenorchy LGA, which encompasses the cheaper suburbs north of the CBD. They include suburbs like Moonah (median house price $275,000), Glenorchy ($235,000), Goodwood ($205,000) and Montrose ($245,000).

Tasmania’s second city Launceston also has an improving market, with most of its suburbs having median house prices in the $200,000s and $300,000s.

Melbourne and Victoria
Melbourne has overtaken Sydney, but has plenty of attainable options

I predicted in a number of reports in October and November that Melbourne was poised to overtake Sydney as the leading city on price growth early in 2016. Price statistics published in February confirmed that Melbourne was now No.1 in terms of the annual rate of growth in median house prices.

Sydney spent most of 2015 steadily fading, while Melbourne remained buoyant. I expect Melbourne to have another good year in 2016, although I expect the market to peak some time in the first half of the year. It depends on how you measure these things – in terms of sales activity, I think Melbourne has peaked already, but in terms of prices (which lag market activity by about six months) the peak should happen some time towards the middle of 2016.

It’s clear that the Top End of the market, the auction frenzy suburbs, have lost much of their spark but there remains plenty of life in the Middle Ring and Outer Ring suburbs.

And this is the good thing about Melbourne for those looking for affordable options. Melbourne has plenty of solid precincts with attainable prices – and the city is at that stage of the cycle when those areas are the ones with rising momentum, leading to near-term price growth.

Those more affordable precincts include the LGAs of Casey in the far south-east, Whittlesea and Hume in the north, Brimbank in the west and Wyndham in the far south-west. Those precincts all have strong impetus in their markets and large numbers of suburbs with rising sales trajectories.

Casey is now equal first in Melbourne for the number of growth suburbs, challenging middle-market areas like the Whitehorse LGA which has dominated the charts for the past year or so. Like so many of the cheaper areas of our major cities, Casey’s appeal is all about affordability, good infrastructure and proximity to jobs nodes. Down in that part of Melbourne there are good road and rail links, major medical and educational facilities, and significant employment precincts.

The various Cranbourne suburbs have median house prices in the $300,000s or low $400,000s.

In terms of jobs nodes, there’s nowhere better in Melbourne than the northern suburbs, which include the municipalities of Whittlesea and Hume. Major companies that have big warehousing and logistics needs want to be where the major road links are good, so many are focused in the north close to the ring road where they can head north, west and east easily. Melbourne’s fruit and vegetable markets moved up there recently as well.

So there are lots of jobs, good amenities and facilities, and plenty of affordable suburbs where houses are typically in the $400,000s and unit and townhouses in the $300,000s.

The Brimbank LGA in the western suburbs is one of the precincts most heavily impacted by infrastructure, which is one of real estate’s most influential factors. The precinct based on the suburb of Sunshine has two university campuses, a major public hospital, plans for a new private hospital and the new $800 million transport hub for buses and trains.

Urban renewal forces are sweeping through that area, with former industrial land being reinvented as modern residential. This previously stigmatised area is being reborn.

Outside of Melbourne there are many affordable options in solid regional cities. The City of Greater Geelong has by far the strongest market at the moment and provides an affordable lifestyle alternative to Melbourne, to which it is now better connected following completion of the $5 billion Regional Rail Link. The process of Geelong’s evolution – from a blue collar factory economy to a white collar one with education, health and IT the leading employment sectors – is continuing to gather pace.

Bendigo and Ballarat are both substantial regional cities with diverse economies, good links to the capital city and plenty of real estate priced below $300,000.

Other places worth considering for affordability and solid growth prospects include Warrnambool, Mildura, Shepparton, Traralgon and Sale.

Perth and Western Australia
Perth’s decline will provide plenty of good buying options

As I have noted in previous editions of this report, most investors don’t take action until they read or hear that there’s a boom happening somewhere. The smart ones, and they’re quite rare, buy when markets are down in areas where their research shows there will be recovery and growth in the near future. They buy when markets are down because there are plenty of homes for sale, but few buyers, so they can negotiate from a position of strength.

Perth is a good example of the opportunities to buy well for future gains. Its market peaked in 2012, having been boosted by a strong resources economy, and is now over three years into its down phase. I would expect this market to touch bottom some time in 2016, probably in the second half of the year.

In terms of the Housing Affordability Index, Perth and WA have made some of the biggest gains in the nation in the past 12 months. In 2015, Perth’s affordability index improved 11%, while regional WA improved 14%, thanks to price decline in major markets.

Compared to 2010, affordability is significantly better now in both Perth and WA.

As with the other cities, buyers on a budget should target areas that not only offer cheaper homes but also good infrastructure, especially transport links, and proximity to jobs nodes. Perth has a number of precincts that fulfill those criteria well.

Rockingham City in the far south-west is a good example. It’s a collection of bayside suburbs, with good road and rail links north and south, a number of big employment nodes in the area – with houses typically in the $400,000s and units in the $300,000s.

The suburb of Rockingham, which is undergoing a process of renewal and gentrification, is typical. The median house price is $440,000 and the median unit price is $305,000.

Other areas that offer plenty to buyers on a budget include the LGAs of Gosnells in the south-east, Armadale in the far south-east and Wanneroo in the far north.

There’s also plenty to like about the City of Swan in the north-east – some of its suburbs are in the affordable category and others not.

One to consider because of a major piece of planned infrastructure is the suburb of Forrestfield, which is to be linked to the airport and beyond to the CBD via a new rail link. Houses there are typically in the low $400,000s. Rail links to an area that previously lacked them can be a game changer.

Outside the capital city, the resources towns in the north are still places to avoid. Even though prices have dropped a lot in towns like Port Hedland, Karratha and Newman, values are still too high. Over the past three years, $450,000 has been cut from the value of the typical house in Port Hedland – but it’s too far too expensive at $750,000. Yes, the median price used to be $1.2 million in this crazy town.

But there is good value for money in some of the lifestyle centres south of Perth. Mandurah, Busselton and Margaret River all have solid markets with affordable options. So too does the industrial city of Bunbury.

Sydney and New South Wales
Sydney presents the toughest task for those seeking cheaper options

It would surprise many to learn that Sydney’s affordability index today is better than it was five years ago. Only marginally so, but better nevertheless. Obviously it has deteriorated in the past 12 months and over the past three years, thanks for steady price rises across the city. But, compared to 2010, affordability is better today, despite the recent decline.

Why is it so? Firstly because prior to 2013, Sydney had has 10 years with very little price growth. Sydney prices weren’t doing much in 2010, 2011 or 2012, before the boom started. Meanwhile, over the past five years average incomes have risen and interest rates have dropped considerably, despite recent increases by the major banks.

Sydney’s affordability index generally improved in 2011 and 2012. It started to deteriorate gradually as prices began to rise in 2013 and has been trending downwards ever since. But still not to the levels of 2010.

It’s been a different story in regional New South Wales. Yes, there is a NSW outside Sydney, although journalists don’t appear to realise it. Since 2010, the affordability index in regional NSW has steadily improved. Overall, affordability improved 1.4% in 2015 and is considerably better than five years ago. With a couple of exceptions, regional NSW has not replicated the price growth experienced in the state capital.

There is some evidence from ABS data of a trend of Sydney residents moving to regional areas to access a cheaper and less hectic lifestyle. There are many strong regional cities and towns in NSW where the pace of life is slower, homes are much cheaper and there are good economic prospects. It’s not compulsory to live in Sydney.

Meanwhile, in Sydney, as we have observed in previous reports, the boom is over and we expect price growth to be moderate or muted in 2016. We do not, however, expect any significant decline in prices. So overall affordability won’t change much this year.

One of the ways media misleads consumers about Sydney prices is that they’re addicted to the storyline that “the Great Australian Dream is dead” and that kids can’t afford to buy anymore. To support that pre-conceived headline, they always quote the median house price, often inaccurately, and ignore apartments. This is a considerable oversight, given that so many Sydney residents live in units and townhouses.

So, while the median house price for Sydney is $885,000, according to CoreLogic, the median unit price is $655,000 – which means half of all sales are for lower figures.

Affordability is about the relationship between prices and incomes, with interest rates also part of the equation. Sydney has the highest prices in Australia but incomes are also high – so sufficient numbers of buyers have been able to afford its prices to generate three years of elevated activity and record prices.

But for those on a budget, looking to buy in the $300,000s, $400,000s and $500,000s, Sydney now presents a difficult proposition. Essentially it becomes an exercise to find affordable apartments in good locations.

Blacktown is one of the standout markets of Sydney. Last year it was No.1 in Sydney and NSW for growth in land values. Many of the suburbs of Blacktown City recorded growth above 20% in median house prices. Suburbs that three years were in the high $300,000s or low $400,000s are now above $600,000.

But units are a lot more affordable. In the past 12 months, there were 225 unit sales in the suburb of Blacktown at a median price of $425,000, with rental yields close to 5%.

Blacktown is part of one of nation’s growth economies, that of Western Sydney. Penrith is also part of this rising economic force – and in the suburb of Penrith the median unit price is $355,000.

One of Sydney’s leading suburban markets for units is Liverpool, a regional centre within the Sydney metropolitan area, with major services and amenities on offer, including good transport links to other parts of the metropolis. In the past 12 months there were 420 unit sales at a median price of $385,000, with rental yields around 5%.

A little closer to the centre of the city, Westmead is a standout market because of its strong precinct of university and medical facilities. It has good transport connections and they will become better when the $15 billion WestConnex project happens. In the meantime, this area is strongly targeted by young buyers for its well-located and well-connected units. After 280 sales last year, the median price rose 17% to $550,000.

Sydney is a big city with over 700 suburbs. Anyone who takes the time will find locations that present affordable options, relative to Sydney prices overall. But they won’t be beside beaches or overlooking water.

There’s a lot to NSW outside Sydney, including Newcastle which is a bigger city than some of our capital cities. It has a strong economy, which includes a major export port and a RAAF Base targeted for a $1 billion expansion. Its links to Sydney are regularly the focus of big-picture planning, including recent ideas about a high-speed rail link.

Newcastle has lots of good real estate – elevated suburbs with ocean views – and plenty of affordable suburbs.

Right throughout the state there are strong regional centres with good economies and property markets that show steady growth. They include Dubbo, Orange, Wollongong, Albury, Wagga Wagga, Tamworth, Lismore, Port Macquarie, Tweed Heads, Ballina, Wyong, Gosford …. the list goes on and on.

Port Macquarie has been a steadily rising market for the past 12-18 months. Median prices are $430,000 for houses and $305,000 for apartments.

Dubbo is another standout – a strategically located and growing regional centre with a diverse economy, good infrastructure, transport links that include road, rail and air, multiple growth factors, and houses priced typically in the low $300,000s.

Most Australians are comfortable with their mortgages

Next time someone tells you that Australia is a country with an affordability crisis and households suffering from mortgage stress, refer them to the official figures on mortgage delinquencies, which means people behind on their repayments.

Mortgage delinquencies are currently 0.9%, according to Fitch Ratings. In other words, less than 1% of households with mortgages are behind on their repayments. Those who are 90 days behind are only 0.4% of the total.

Fitch analyst James Zanesi says that not only is this a record low for Australia, but it’s exceptionally low compared to other countries.

Other research has found that 75% of households with mortgages are ahead on their repayments. The average situation is two years ahead.

A recent survey of Australians who had recently bought homes as first-home buyers found that the vast majority felt very comfortable with their repayments. Indeed, most said they could deal with up to four interest rate rises (assuming rises of 0.25 percentage points) and still be comfortable making their repayments.

That makes sense because lenders assess borrowers’ ability to make repayments assuming that interest rates are 2 or 3 percentage points higher than current levels.

Media doesn’t give a great deal of prominence to his kind of research. It prefers fraudulent documents like the Demographia report, which claims that all of Australia is unaffordable.

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