Does postcode discrimination impact housing prices?

For those who slammed Struggle Street as "poverty porn for the middle class", we are wondering how and if postcode discrimination affects property prices in Mount Druitt, compared to different suburbs in Sydney.

postcode discrimination

Evidently, suburbs that carry a lower socio-economic status will see lower average incomes and lower mortgage repayments compared to the national average. After all, everything is relative, right?

However, as Western Sydney is particularly tainted with a negative "image" (only to be exasperated by Struggle Street), we wanted to see just how substantial the differences in housing affordability are across different pockets in Sydney, and whether or not these findings are relative.

Hyperbolic or not, we compare the difference in the required income to remain below mortgage stress levels, and the average housing prices of Mount Druitt, compared to different suburbs of Sydney, using our salary vs suburb calculator.

The differences are substantial.

Sydney’s western region

The portrayal of drug addiction, unemployment and poverty are just some of the stereotypes explored within the observational documentary series Struggle Street.

We punched in the numbers to discover that those residing within Western Sydney’s Mount Druitt, require a household income of $101 198.70 to stay below mortgage stress level. Based on a median house price of $485 000, people would need to make monthly repayments of $2 445.64.

This required household income of $101 198.70 is relatively high compared to the average annual household income of Mount Druitt which is $54 548, with a required income/average household income ratio of 0.54.

This indicates that on average, people earn 54% of the income required to manage mortgage stress, which is in fact, much higher compared to other regions in Sydney.

Sydney’s eastern suburbs

When we compare this to an Eastern Sydney suburb such as Bronte, the difference is significant.

The required household income to stay below mortgage stress level in Bronte is $472 086.72 (over quadruple the amount of those residing in Mount Druitt). Based on a median house price of $2 262 500, people would need to make monthly repayments of $11 408.76, compared to $2 445.64 in Mount Druitt.

The required household income of $472 086.72 is substantially higher compared to the average household income for Bronte is $120 536, with a required income/average household income ratio of 0.26. This suggests that people have just 26% of the income required to stay below mortgage stress levels.

Southern Sydney

If we move to Cronulla in Southern Sydney, we can see a large difference in the required household income required to stay below mortgage stress level as well as a major difference in average house prices.

Cronulla residents need a required income of $319 245.38 to avoid mortgage stress (3.15 times the amount of Mount Druitt residents). Based on an average house price of $1 530 000, residents would need to make monthly repayments of $7 715.10, compared to $2 445.64 in Mount Druitt.

The required household income of $319 245.38 is substantially higher than the average household income of $75 660, with a required income/average household income ratio of 0.24, so residents have just 24% of the income needed to manage their mortgage stress.

Sydney’s upper north shore

In the northern precinct of Hornsby, the required household income to stay below mortgage stress level is $191 129.92 (1.89 times the amount of Mount Druitt residents). Based on an average house price of $916 000, residents would need monthly repayments of $4 618.97, compared to $2 445.64 in Mount Druitt.

The required income of $191 129.92 is high compared to the average household income of 74 672, with a ratio of 0.39, showing that residents have 39% of the required income to stay below mortgage stress levels.

How does unemployment affect housing prices?

Mount Druitt’s 8.4% unemployment rate is alarmingly higher compared to the representative suburbs of Bronte, Cronulla and Hornsby with 4.0%, 7.1% and 5.23 % unemployment, respectively.

With housing prices significantly lower than other representative areas of Sydney, and a lower required income to manage mortgage stress, it is clear that the social issues that prevail in Mount Druitt have influenced the price of dwellings within this area.

According to Yong (2000) unemployment has a significant effect on real housing prices in both the short term and long term. Recent research has indicated that other economic factors, such as neighbourhood disadvantage and domestic violence can also contribute to lower than average housing prices in Sydney.

Housing affordability is in fact relatively high in Mount Druitt as they have the highest required income/average household income ratio of 0.54.

Based on this, it appears that postcode discrimination doesn’t exist to the extent that many believe it does. While Mount Druitt has a lower socio-economic status compared to Bronte, Hornsby and Cronulla in terms of unemployment, the average housing prices and required income to manage mortgage stress are seemingly relative.

So does this warrant an ethically-borderline TV series that reinforces the social issues of Mount Druitt?

It’s a fine line.

Notes

  • Yong, Tu. 2000. "Segmentation of Australian housing markets: 1989-98", Journal of Property Research, 17(4), pp. 311-327.
  • Required household income, average house prices and estimated monthly repayments are based on median property prices as at November 2014, gross salary calculations based on current average variable home loan interest rates as at March 2015, mortgage size 90% LVR of gross income towards mortgage repayments (to remain below mortgage stress threshold of 30%).
  • Average household income is based on the weekly median household of property profiles income has been multiplied by 52 weeks.
  • Acknowledgement that data included in this article is indicative and may hold some inaccuracies.

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Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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