iscover
iscover 
Despite the recent slide in dwelling values across the city, CoreLogic data shows property prices are still 69 per cent higher than they were when the market reached a low point in Feb 2012 and, although interest rates remain low, affordability is still a talking point. So how will the current landscape inform government policy, developer activity and consumer behavior in Sydney over the coming year?
Investors
Investors are still active in the market, with the latest ABS housing finance data showing they comprise 51 per cent of mortgage demand. This is despite tougher serviceability criteria and higher mortgage premiums.
That said, investor mortgages have fallen from their peak of 65 per cent in 2015, and we could possibly see this decline further in light of slow capital gains and consistently low rental yields in Sydney.
First home buyers
On the other hand, first homebuyer activity rose from 7.5 per cent in early 2017 to almost 15 per cent by the end of last year, indicating a rush to benefit from stamp duty concessions. But despite the increased activity, saving for a deposit is prohibitive for many and this cohort remains a small percentage of all buyers.
To combat this, ‘rentvesting’ – where you rent in your preferred area and buy somewhere more affordable - is likely to become more popular among younger buyers, as is staying at home for longer, or even moving interstate. This already growing trend for domestic migration out of NSW is set to continue as people consider how far their dollar will stretch outside of Sydney.
Government
In contrast, strong overseas migration rates into Sydney are fueling greater demand for housing. As such, we can expect housing supply to be a priority among government housing policies, including more affordable options.
Taking a long-term view, this is bound to have a greater impact on housing affordability challenges then initiatives such as stamp-duty concessions, which stimulate demand and simply drive values higher.
Developers
Apartment construction has grown to unprecedented levels in recent years, stimulated by demand from local investors and foreign buyers. As these groups are no longer buying at the levels they were, this should influence a decline in unit construction across NSW – mirroring a trend that has been emerging in Victoria and Qld since late 2016.
Instead, we can expect to see developers shift away from high-rise construction towards building town houses and terraces that meet the needs of families. These are currently under supplied and will be highly sought after.
Lenders
While the cash rate isn’t likely to rise this year, mortgage rates could still push a little higher due to higher funding costs on capital markets. Sydney homeowners with several years of property ownership under their belt may have built substantial equity in their home and be able to withstand interest rates moving higher. More recent buyers, particularly those with thinly stretched balance sheets, could find themselves at greater risk of mortgage stress.
However, it could be feasible for lenders to slightly relax their lending policies as APRA has met its targets around credit growth and interest only lending – helping to ease the downward trajectory of Sydney home values.
While there have certainly been some positive outcomes for several players in the Sydney housing market over the past year, enduring challenges remain – particularly around affordability and supply. In a few decades time, this may be less of an issue with technology making it easier for people to live and work outside of the city. But in the short term, tackling these challenges has to remain a priority.
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