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Here’s what a house could cost in Sydney in 2050

Posted: 29 June 2016 11:21 am
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Housing affordability in 2050

House prices in Australia are already unaffordable, but what will they look like by 2050?

Australia is consistently ranked among the least affordable countries in the world for housing. The problem is particularly acute in Sydney and Melbourne. Residents of these two cities devote more than a third of their income to their mortgage repayment, to the tune of 35.6% in Sydney and 30% in Melbourne, according to Moody’s.

The most recent CoreLogic Hedonic Home Value Index showed the cumulative change of capital city home values from January 2009 to May 2016 was an increase of 54.1%. Meanwhile, the mean household income increased just over 18% during the same time period.

House price growth is meant to slow in the year ahead, but income growth has also been in the doldrums, growing at its slowest pace in 18 years last year. If these trends continue, what will the future look like for housing affordability? Let’s check out the numbers.

House prices

According to the latest CoreLogic Hedonic Home Value Index, the median house price across Australia’s capital cities was $580,000. That was up 10% on last year. Sydney and Melbourne also saw some heady gains. Sydney’s median house price was $782,000, a rise of 13.1% on the previous year. Melbourne, meanwhile, saw median prices rise by 13.9% to $590,000.

It’s been an impressive run for Australian house prices overall. During the current growth cycle, capital city home values are up 36.6%.

While the property market has some dramatic peaks and troughs, over the longer term it grows at a much steadier pace. Over the past 10 years, combined capital city home values have grown by an average of 5.5% per annum. Sydney and Melbourne have seen slightly more robust growth, increasing at 6.4% per annum and 7.1% per annum, respectively. Darwin has grown slightly below the average for combined capitals, at 5.5%. Canberra, Adelaide and Brisbane have fared slightly worse at 4.0% for Canberra and 3.7% for both Brisbane and Adelaide. Perth and Hobart have seen anaemic growth, meanwhile, at 2.1% and 1.3%, respectively. If house prices follow this trend, this is how the property market could look by the year 2050.

Current median house price2050 median price at current rate of growth
Sydney$782,000$6,444,988
Melbourne$590,000$6,077,067
Brisbane$475,000$1,633,696
Perth$506,000$1,025,713
Hobart$335,000$519,714
Canberra$550,000$2,086,874
Adelaide$415,000$1,427,335
Darwin$519,000$3,102,760
Combined capitals$580,000$3,581,060

Household income

An important factor to examine when determining affordability is whether or not household income is keeping pace with property price appreciation. Figures from the Australian Bureau of Statistics tell us that the mean weekly household income as of 2013-14 was $998. Much like property prices, mean weekly household income goes through peaks and troughs. But examining trends over the past 10 years, we can see it’s grown by an average of 5.4% per annum.

If we assume this rate of growth continued from 2014 to 2016, it would put the mean weekly household income at $1,109, as seen below.

At $1,109 per week, the mean annual household income would be $57,668. That would put the median capital city house price at just over 10 times the mean annual household income. Of course, this isn’t a perfect measure as we’re comparing a median and a mean, but it paints a picture of house prices being significantly unaffordable for Australians on an average income. The picture is bleaker in Sydney and Melbourne. In Melbourne, the median house price is nearly 10.4 times the mean annual income, whereas in Sydney median prices are an alarming 13.5 times annual income. So what happens if the mean household income increases by 5.4% per annum between now and 2050?

Current mean annual incomePotential mean annual income by 2050
$57,668$344,759

What could the future hold?

Of course it’s impossible to say with any certainty what the future holds for housing affordability, but if we put these pictures together it creates an alarming trend. Extrapolated out to 2050, the gap between mean household income and median house prices widens significantly in Sydney and Melbourne, as seen in the graph below.

By 2050, the median house price across Australia’s capitals has grown relatively in line with mean annual incomes, now sitting at 10.4 times the mean income. Still unaffordable, but not significantly less affordable than now.

The picture is starkly different in Sydney and Melbourne, however. Melbourne’s median house price rises from 10.4 times mean income to 17.6 times mean income. In Sydney, median prices soar even further out of reach, from 13.5 times mean income to 18.7 times mean income.

CityCurrent multiple of median house price versus mean incomePossible 2050 multiple
Sydney13.518.7
Melbourne10.417.6
Brisbane8.24.7
Perth8.83
Hobart5.81.5
Canberra9.56.1
Adelaide7.24.1
Darwin99
Combined capitals10.110.4

Meanwhile, house prices appear to become more affordable across much of the rest of the country. A house costing 8.8 times mean income in Perth today could fall to just three times mean income if trends continue. A house in Hobart currently costing 5.8 times mean income could plummet to just 1.5 times mean income by 2050.

Obviously this picture could change significantly. Any number of external factors could see house prices falter or incomes rise. House price growth could boom cities where it's traditionally lagged, while strong performers could see slumps in the future. But if the situation continues to progress as it has, it appears housing affordability in Australia could look drastically different in the future.

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A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
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HSBC Home Value Loan - Promotional Offer (Owner Occupier P&I)
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2 Responses

  1. Default Gravatar
    PhilMarch 6, 2019

    What would be the rough projected cost in 2050 of an insurance policy currently costing $450 per month?

    Also what would be projected average wage in 2050?

    • Default Gravatar
      NikkiMarch 7, 2019

      Hi Phil,

      Thanks for getting in touch! Depending on where you’re be staying, in Sydney the projected cost of a house will be 10x more expensive in 2050. We are not for sure certain how much home insurance would cost in 2050 as well as projected average wage. It will mostly depend on the Australian economy in 2050. Hope this clarifies. Don’t hesitate to message us back if you have more questions.

      Best,
      Nikki

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