Although nationally dwelling values have now fallen by -3.5% from their peak with much larger falls in Sydney, Melbourne, Perth and Darwin, the reality is there has been very little improvement in housing affordability. Sydney and Melbourne in particular are a little cheaper than they were but remain substantially more expensive than other capital cities.
Although house values in Sydney are now -9.3% lower than their peak, the cost of a house in Sydney is still substantially higher than elsewhere at $960,344. In fact, a house in Sydney is now more than double the median value of an Adelaide and Hobart house.
Looking at house values over time is interesting. Sydney has fairly consistently been the most expensive capital city housing market however, at one point Perth was slightly more expensive (after Perth values surged more than 40% annually at one point in 2006 on the back the resources boom). Relative to other capital cities the Sydney premium is recorded at: 23% for Melbourne, 76% for Brisbane, 105% for Adelaide, 100% for Perth, 101% for Hobart, 88% for Darwin and 44% for Canberra. Despite recent value falls in Sydney, the value gap has not been at such wide levels as it is currently for most cities since late 2003/early 2004. The one exception is the value differential for Melbourne which over recent years has been substantially narrower than it has been historically.
On a similar note, the Melbourne value gap compared to other capital cities (except Sydney) is the widest it has ever been. Historically, the value of houses in Melbourne have been quite similar to those in Brisbane and Perth however, this is no longer the case.
It is a very similar story for units. The median unit value in Sydney ($740,394) remains more expensive than median house values in all other capital cities except for Sydney and Melbourne. Similarly, the median Melbourne unit value ($555,517) remains higher than median house values in all other capital cities except Sydney, Melbourne and Canberra.
In terms of unit values over time, again it has been a fairly consistent trend whereby Sydney has been more expensive than the other capital cities. The current premium for Sydney compared to other capital cities sits at: 32% for Melbourne, 90% for Brisbane, 123% for Adelaide, 94% for Perth, 95% for Hobart, 134% for Darwin and 67% for Canberra. Again, as was the case for houses, the differential has not been as large as it is currently between Sydney and these other capital cities since 2003/2004. Again Melbourne is the main exception where the differential has been reducing over recent years.
With house and unit values falling in Sydney and Melbourne we would expect the premiums to reduce further over the coming months and year(s). While this may be the case, any significant reduction in housing costs back to historic premiums would take a long period of declines or flat housing market conditions. Furthermore, it seems unlikely, given the economic strength and populations of Sydney and Melbourne that the value premium of housing in these two cities will revert to historical levels.