Sydney and Melbourne suburbs dominate improved housing affordability

The data from CoreLogic revealed how property prices in suburbs across Australia have changed since the 2010s peak.

Despite persistent unaffordability across much of the country, figures highlight improvement, said CoreLogic head of research Eliza Owen.

“Housing affordability in Australia continues to deteriorate on several fronts. The rate of newly built housing supply has largely been insufficient to meet demand from strong population growth and new household formation,” she said.

“However, new analysis from CoreLogic has identified 65 unit markets in Sydney and Melbourne where values are below record highs from the 2010s. In some of these markets housing affordability is improving despite high interest rates and a high portion of vendors are willing to sell at a loss.”

While there is opportunity, apparently buyers aren’t taking advantage of the increased affordability. The entire Sydney market has seen an 8.7 per cent increase since mid-2017. However, many suburbs have witnessed substantial decreases, with the largest drops being:

1. Epping (down 18.4 per cent)
2. East Melbourne (down 17.3 per cent)
3. Beecroft (down 16.5 per cent)
4. Abbotsford (down 16 per cent)
5. Sydney Olympic Park (down 14.8 per cent)
6. West Melbourne (down 13.9 per cent)
7. Kensington (down 13.5 per cent)
8. Granville (down 12.8 per cent)
9. Middle Park (down 12.5 per cent)
10. Armadale (down 12.4 per cent)

So, what’s driving these changes? According to Owen, it’s a mixture of oversupply and reduced interest in the outer city suburbs.

“Underperforming unit markets in Sydney and Melbourne are generally tied to an oversupply of investment-grade units built in the 2010s. As interest rates moved lower post-GFC, residential property investment became particularly attractive in the inner and middle ring suburbs of Sydney, and inner-city suburbs of Melbourne and Brisbane,” she said.

“This period saw the investor share of new housing finance hitting record highs of 46 per cent in 2015. Foreign investment purchases of off-the-plan apartments rose, and strong investor uptake of interest-only loans for tax purposes possibly added to speculative activity in the apartment sector.

“This led to a boom in unit construction, where investor activity is generally far more concentrated in the unit sector. Nationally, apartment approvals peaked at 123,000 in the year to August 2016. Notably, apartment approvals eclipsed detached house approvals during this period, another sign that the market was shaped by elevated levels of investment activity. Housing and occupancy data from the ABS at the time showed owner-occupiers overwhelmingly opted for house purchases, with around 80 per cent of recent home buyers purchasing a house in the 2015–16 financial year.”

This uptick in apartment investment mellowed out in 2017. Owen said this is due to a temporary cap on interest-only lending, reducing potentially risky lending.

Furthermore, controversy with dodgy builds such as the Opal Tower in Olympic Park and Mascot Towers added fuel to the already raging fire, taking a hit to confidence in the market. These complications have reportedly stayed in the mind of consumers, contributing to the rising affordability in some areas.

“The result of the 2010s apartment boom has meant some of the most convenient and well-located development sites were utilised for a specific type of buyer at a specific point of time – however, supply built during an investment boom may not meet needs of today’s buyers. Instead of first home buyers rushing to this relatively affordable stock, many are likely to be wary of defects in these builds, or turned off by the high density and relatively small size of the units,” said Owen.

“Even today’s investors may be deterred from these markets, which have delivered poor capital growth returns for the better part of a decade. Although rents have risen strongly in the past few years, interest rates are also now higher than in the 2010s, and values in some of these apartment markets may need to fall further in value to be attractive from a rent yield perspective.

“Interestingly, some of these unit markets have seen a strong turnaround in capital growth of late. In Tallawong, where the metro Northwest line opened in 2019, unit values have gained an extraordinary 11.9 per cent in the 12 months to September. Low-priced unit markets in Punchbowl and Lakemba in Sydney, and Parkville in Melbourne, have also relatively high rates of growth in the past year, and still have a median unit value below $600,000. This suggests that buyers may eventually be swayed to consider purchasing in medium-to high density unit markets … but only if the price is right.”

Related: Price falls recorded in 4 capitals

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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