Australia has 11 of the world's 25 least affordable cities for housing. The American consultancy Demographia this month released data of 272 urban areas around the world, and Sydney, the Gold Coast, and the Sunshine Coast were three of the four least affordable. Melbourne was seventh.
The reason for Australia's high prices is extreme zoning measures, which prevent new housing developments. Other places with similar restraints include Vancouver -- the least affordable city -- and California, Florida and Britain.
Recent data from Australian Property Monitors on house price trends across capital cities showed that, despite already being extraordinarily high, prices rose a further 12 per cent last year. Apartment prices rose 10 per cent.
Sydney, Australia's most expensive housing market, recorded increases at about the national average. Melbourne prices rose more than 18 per cent.
Compared with median house prices of $596,000 in Sydney and $518,000 in Melbourne, the median in similar cities, Dallas and Atlanta, was $US150,000 ($169,000) and $US129,000 respectively.
Another way of evaluating prices is to examine median prices as a multiple of median incomes. On this measure, to buy the average house in Sydney last year required nine times average annual earnings. In Melbourne, it was eight times annual earnings.
By contrast the average Atlanta house cost just 2.1 times the region's average annual income; for Dallas the cost was 2.7 times the average annual income there.
For a median-priced house in Sydney and Melbourne, the standard monthly mortgage payment is estimated at $2988 and $2521 respectively. In Dallas and Atlanta the payments are $US790 and $US680. In terms of proportion of income, mortgages cost between 13 and 17 per cent of gross income in the two US cities, compared with more than 50 per cent for Sydney and Melbourne.
Some claim land availability limits housing options for Australian cities. This is incorrect. Far less of Australia is urbanised compared with other countries. Sydney has enough developable land on the Cumberland Plain to expand the city size by 50 per cent, without even examining other possibilities. Melbourne, like other Australian cities, has no land constraints.
The NSW Premier, Kristina Keneally, responded to the Demographia data by questioning its reliability, but there is no doubt about the accuracy of the estimates. She claimed infrastructure costs for development outside established areas would be exorbitant, and that the energy usage accompanying such development would be excessive. On neither count is she right.
Infrastructure costs of new developments on the urban periphery are generally lower than those involving redevelopment of so-called brown-field sites within the city's existing area.
As far as energy consumption is concerned, the Premier's view is contradicted by an unlikely source. The Australian Conservation Foundation documents greenhouse gas emissions by suburb, which is a proxy for energy use. In inner Sydney there were 37 tonnes of greenhouse gas per capita. In inner-west Burwood it was 22 tonnes, in outer-west Parramatta 20 tonnes and on the fringe at Campbelltown 16.68 tonnes.
Similarly in Melbourne, central Port Phillip had 27 tonnes per capita, inner Darebin had 23 tonnes and outer Melton 18 tonnes. The reasons behind such differences are many, but include increased energy spent on clothes drying and heating, and lifts and lighting in apartment blocks. Contrary to many misconceptions, few people in the outer areas take long energy-intensive daily commutes by car to the central business district.
Those areas in the US where punitive zoning is not in place have been dubbed "flatland" by the economist Paul Krugman. He recognised the housing boom and the bust last year were confined to that half of the US with highly restrictive land use regulations. The prices in these land-restrained places collapsed as a result of the US recession. However prices showed little movement in Texas, the Carolinas and other areas where re-zoning is readily approved.
Houses in Australian cities have seen price rises similar to those US areas where strict zoning approvals are in place, but because Australia has had only a mild recession, property prices have remained relatively stable.
These matters aside, the planning regimes throughout Australia disadvantage new homebuyers. While our land preparation and house building industries are as cheap as anywhere in the world, the planning and zoning stranglehold on land releases pushes up prices to astronomical levels.
Experience reveals the thicket of regulations impeding planning approvals is impenetrable even to provisions explicitly designed to override them. And homebuyers suffer.
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