Here’s what $1 million gets you in central Sydney. A functional two-bedroom apartment with around 100 square metres of floor space.
Here’s what $1 million gets you in central Melbourne. A two-level, three-bedroom apartment with two carparks and a balcony that’s half as big again.
Here’s what $1 million gets you in central Adelaide. A substantial house in the centre of town.
The debate about house prices makes a lot of hay out of differences over time. Prices in Melbourne are 5.4 per cent higher than they were three months ago! That is generally seen as an argument that Melbourne prices must be set for a fall.
But the difference in prices between Australian cities is even bigger.
Sydney’s median price for an attached house was at Melbourne’s current level in 2003 and has risen from there. Melbourne was at Adelaide’s current level in 2007 and has risen. Taking this perspective would seem to suggest there’s nothing to stop Melbourne house prices from going up further.
Obviously there are constraints. Wages differences between the cities are real. This chart shows $/week in the capital cities.
But they are not as big as house price differences. (source: RPDATA)
House price to income ratios in these cities show Melbourne and Sydney are similarly “unaffordable” and in Adelaide things are a bit easier.
You could in theory argue that means Melbourne and Sydney prices are as likely to fall to Adelaide levels as Adelaide’s are to rise. I’ve argued before that expecting house prices to be a consistent multiple of income over time is a wrong expectation.
The fact that house prices can be so different in Australian cities hints at the truth. There is no “correct” level for Australian house prices. We cannot rely on history to say where they should be, neither can we rely on price-to-income ratios. In fact, the concept of “Australian house prices” is suspect. Housing markets differ wildly by location.
The only clear lesson of all this really, is that if you want a lot of house for your money, you should look outside the capitals. Here’s what $1 million buys on 10 acres near Ballarat.