AAP FactCheck

Restoring confidence in public statements by independently testing and verifying the facts

Is Sydney’s housing market trapped in an ever increasing bubble and completely unaffordable?

By James Lane, Louise Evans and Brian Kelly

The Statement

"Sydney has completely unaffordable housing due to an ever increasing bubble effect."

United Australia Party candidate for Chifley Joseph O’Connor. May 7, 2019.

The Analysis

Joseph O’Connor, the United Australia Party candidate for Chifley in Sydney’s outer west, claims it’s becoming intensely difficult for first-home buyers to enter the market and rents are increasing at an “exponential rate”. [1]

AAP FactCheck examined Mr O’Connor’s claim housing in Sydney is “completely unaffordable” because of an “ever increasing bubble”.

The Reserve Bank of Australia states while there is no “single universally applicable measure” of housing affordability it is often broadly defined as the ratio of average household income to the income required to meet debt repayments on a typical house. [2]

A 2017 OECD economic survey of Australia noted “the ratio of house prices to incomes has undergone further increase in recent years, straining affordability, especially for first-time buyers in Sydney”. [3]

The 2019 Demographia International Housing Affordability survey placed Sydney as the third least affordable major housing market. The survey rated housing affordability using the average house price divided by average household income or Price Income Ratio (PIR). Data for the survey was based on third quarter of 2018 and covered 90 cities of more than one million people. For the ninth year in a row Hong Kong has the worst housing affordability in the Demographia International Housing Affordability Survey.

Vancouver displaced Sydney as the second least affordable major housing market. [4]

Global real estate agency Knight Frank’s global housing affordability monitor ranks 32 cities for housing affordability using three metrics: house price to income ratio, rent as a proportion of income and real house price growth compared to real income growth. Cities with the least affordable housing were Amsterdam, Auckland, Hong Kong, Los Angeles, San Francisco, Sydney, Toronto and Vancouver, according to the monitor. [5]

Regarding Mr O’Connor’s claim of “an ever increasing bubble effect”, a housing bubble is defined as a period in which prices “run well above or below the intrinsic value”, according to a Harvard University paper for the US-based economic research organisation National Bureau of Economic Research. [6]

According to data from property consultancy CoreLogic, the Sydney market peaked in July 2017 after surging almost 80 per cent during an upward swing which started in 2012. As of April 2019, the Sydney market had fallen 13.9 per cent since that July 2017 peak. [7]

The Australian Bureau of Statistics reported in March 2019 that Sydney property prices fell 3.7 per cent in the December quarter 2018 and had continued to fall since September quarter 2017. [8]

A graph compiled by BIS Oxford Economics, a provider of macro economics and industry forecasts, and APM Price Finder, a provider of online property sales, comparing Sydney’s house price downturn from 1974-2018 found the current downturn is Sydney's worst since the 1980s. [9]

Based on this evidence AAP FactCheck concludes Mr O’Connor’s claim that Sydney’s “completely unaffordable housing” is caused by an “ever increasing bubble” is false. However there is evidence to support his claim Sydney’s housing is unaffordable.

The Verdict

  • Mostly False - Mostly false with one minor element of truth.

The References

1. ‘Federal Election 2019: Chifley candidates talk local issues’, by Kate Lockley. Blacktown Advocate. May 7, 2019: https://www.dailytelegraph.com.au/newslocal/blacktown-advocate/federal-election-2019-chifley-candidates-talk-local-issues/news-story/9b4fbba930d84b6d7a89c79660dee586

2. ‘The Australian Housing Market: Prices, Ownership and Affordability. 1.7 Affordability’. Reserve Bank of Australia. November 2003: https://www.rba.gov.au/publications/submissions/housing-and-housing-finance/inquiry-productivity-commission-on-first-home/prices-ownership-affordability.html

3.’OECD Economic Surveys. Australia’. (Page 18). OECD. March 2017: https://www.oecd.org/eco/surveys/Australia-2017-OECD-economic-survey-overview.pdf

4. ‘15th Annual Demographia International Housing Affordability Survey: 2019. Demographia International Housing Affordability Survey’ (Page 11 Least Affordable Major Housing Market). http://www.demographia.com/dhi.pdf

5. ‘The Knight Frank Global Affordability Monitor 2019’. Knight Frank. January 28, 2019: https://www.knightfrank.com/blog/2019/01/28/the-knight-frank-global-affordability-monitor-2019

6. 'Housing Bubbles', by Edward L Glaeser and Charles G Nathanson. National Bureau of Economic Research. August 2014 (Page 5): https://scholar.harvard.edu/files/glaeser/files/housing_bubbles_nberwp.pdf

7. 'State by state: An April update on Australia’s property markets', by Michael Yardney. Smartcompany. April 24, 2019 (Sydney housing market): https://www.smartcompany.com.au/industries/property/april-update-property-markets/

8. 'Property prices fall 2.4% in the December quarter 2018'. Australian Bureau of Statistics. March 19, 2019: https://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/6416.0Media%20Release1Dec%202018

9. 'Sydney Houses: Real price movements'. Australian Bureau of Statistics. March 19, 2019:https://www.abc.net.au/news/2019-03-19/sydney-house-price-downturns-1965-2018/10915908

  • First published May 10, 2019 18:18 AEST