House prices – lessons from the huge differences between cities

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. 

People like Christopher Joye and Steven Keen who publicly bet on house price falls regularly get egg on their face.

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.


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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

4 thoughts on “House prices – lessons from the huge differences between cities”

  1. Because we pride ourselves on our service, I’ve done the research…

    For just under a million bucks you get a very nice 4 bedroom apartment in central Beijing:

    IN Ottawa (Ottawa?) you get this. Very comparable to Melbourne, I think.

    There you can buy a whole hotel with 25 rooms, built just 5 years ago for $750,000.
    Or a house with “with 4 rooms, with Kitchen, bath, garage of 5 cars and basement.
    Location: Jai Raees, Darulaman Road, Kabul, Afghanistan.
    Sale Price: $ 110,000 US Dollars (Negotiable)”



  2. I thought you were going to make some interesting observations/projections/conclusions about house prices and wages in the three capitals mentioned. But you ended with a quick dig at a couple of people and then a totally unrelated comment about what you can buy “if you want a lot of house for your money”. I didnt think wanting a lot doe your money was central to the article at all. Not in Ballarat or Kabul anyway.

    I would have thought supply and demand would be a consideration. The rate of growth in these cities, the rate of development. Wages are obviously a factor as you say, but what else?


    1. Dan, I hoped to make interesting observations/projections/conclusions too but I did fall a bit short there. I really only delivered some floorplans. Although that did please some readers, it’s good to be kept honest!


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