Our property prices have risen 550% in 30 years, but are we selling the same thing?
Sydney’s median house price rose by about 550% between 1993 and 2022, a staggering number. However, it doesn’t tell the full story about how the market has changed.
Today’s housing stock is entirely different from what it once was
In the past three decades, Sydney’s housing stock has changed dramatically. We are no longer selling properties the way we did in 1993.
During the 1990s, many vendors still listed properties in an ‘untouched’ condition; however, today, it is much more difficult to find an untouched property in Sydney’s Eastern Suburbs.
Typically, when original homes come to market in the past decade or so, the new owners plan to renovate them or even knock them down and build.
When they do eventually sell, it’s not the same property.
The average Australian house has grown around 150% in size between 1950 and today. For example, the average home is now better equipped, more liveable, and much larger. According to Domain data for Bondi, the proportion of four-bedroom homes sold over the past five years has increased significantly.
These alterations have also often cost the owners hundreds of thousands of dollars, and today’s prices reflect the added expense of that renovation.
It is therefore not fair to compare historical house prices data with current house prices.
Scarcity value
The number of apartments is on the rise at the same time as our houses are getting bigger and more comfortable. According to census data, 1,348 new dwellings were constructed in Woollahra Municipality between 2001 and 2021, with the majority of these being apartments.
The growth of apartments in an area does not necessarily affect the value of homes in the same way that some homeowners believe. Many tenants set down roots in the area after renting an apartment, and they intend to stay there throughout their housing journey. The opposite is often true.
The result is a higher demand for larger properties, such as houses, in the area, which in turn increases house prices. This is evident from the fact that over the past 30 years, house prices have increased substantially faster than unit prices. The median house and apartment values were only 15% apart three decades ago (the median unit price was $163,545, while the median house price was $188,050). As of today, Sydney’s median house price is 58% higher than its median apartment price.
Besides being a local option for downsizers after they sell their family home, apartments also offer a place to live local.
Population growth generating more demand
As a result of Sydney’s growing population, we’re building more dwellings. In 1993, the city’s population was 3,745,000. Now it is 5,121,000, an increase of almost 37%.
If a property goes on the market today, it should have around 40% more interest (although it will not be evenly distributed). In other words, if a home had five genuinely interested parties in 1993, it should now have seven.
Mortgage costs and full-time earnings
As a final note, back in 1993, people made considerably less money.
A full-time adult’s average weekly earnings in May 1993 were $597.80 PW($31,085 a year). By comparison, in May 2022 the average weekly income was $1,835.20 PW ($95,430.40).
A rise of 307% doesn’t fully explain a rise of 550% in property prices, but it does play a role. Especially when the cost of servicing a mortgage has decreased.
In 1993, people bought a Sydney house for its median value of $188,050 at a rate of 9.92%. Their full-time earnings would be 50.5% of $302 a week if they took out a 30-year principal and interest home loan for 80% of the house’s value. The same loan for 80% of the median apartment value would cost them $263 a week, or 44% of their weekly earning.
As of today, if someone bought a Sydney house at its median price of $1,221 and took out a 30-year mortgage at 4.79% interest, they would have to pay $1,181 a week – or 64.4% of their full-time income. With the same 80% home loan, they would pay just $747 a week, or 40.7% of median full-time earnings, if they bought the median apartment for $772,807.
It shows that…
Today’s mortgages are more expensive than they were 30 years ago, but the home they buy is likely to be more grand and luxurious than a comparable house in 1993.
Having said that, servicing a home loan for a median apartment is now much easier than it was in 1993. As long as you are able to save a deposit and are willing to move into a different style of home, it could actually be easier to enter the real estate market today than in 1993.
Are you curious?
We are here to help you with your property needs in the Eastern Suburbs if you’re thinking about buying or selling.