It’s no secret that Sydney’s real estate market is the most expensive in the country but it’s also ranked as the second-most unaffordable in the world.
The recently released Demographia International Housing Affordability report, which ranks housing markets based on their median house price divided by their gross median household income, revealed Hong Kong has the world’s most unaffordable housing market, with Sydney in second place.
The report gave each city a median multiple score and a score of 5.1 was considered “severely unaffordable”.
Hong Kong – which has been the world’s least affordable property market for the last 13 years – had a median multiple of 18.8, while Sydney’s was 13.3.
Sydney outranked other notoriously unaffordable cities such as Vancouver (12), Los Angeles (11.3), Auckland (10.8), London (8.7) and New York (7.1).
Melbourne also ranked highly on the list, with a score of 9.9.
Why is Hong Kong property so unaffordable?
Hong Kong has long been an expensive real estate market driven by low interest rates and a shortage of housing supply, says Knight Frank global head of research Liam Bailey, .
“Because Hong Kong’s market has physical constraints, the land is not easy to develop on, they have a lot of mountains and a series of islands so it’s quite difficult to build on it,” Bailey says.
“Lots of people want to live in mainland China so demand has softened but because supply is constrained, demand is still relatively strong which is the main driver of Hong Kong’s unaffordable housing.”
Despite its number one ranking as the least affordable market in the world, Hong Kong property prices have fallen in recent years as a result of heightened costs of debt and borrowing, and socio-economic changes in the city in the last five years, Bailey says.
“The Hong Kong market is currently facing significant challenges … but population growth is lifting its housing market,” he says.
“The population is expected to grow even more in Hong Kong and the rest of Asia, which will put more pressure on the housing market.”
How does Sydney’s housing market compare with Hong Kong’s market?
When it comes to comparing Sydney and Hong Kong, Bailey says it’s “not that easy” due to the vastly different property types on offer.
“The typical housing in the city are units rather than houses,” Bailey says. “Hong Kong is quite famous for having small accommodation compared to what people are used to, say, in Sydney, and because everyone wants to live in [Hong Kong] city, it’s a very tight market.”
Why is Sydney property so unaffordable?
Sydney’s median house price has hit a record $1.6 million, according to the latest Domain House Price Report.
While there are predictions that it could reach $2 million in a matter of years, Centre for Independent Studies chief economist Peter Tulip says a lot would need to happen in the city for it to outrank the likes of Hong Kong.
“Prices would need to increase by several multiples of income, and prices just don’t do that within the space of a few years – within the space of generations they do,” he says. “Hong Kong is considerably more limited in its capacity for housing expansion, therefore housing is in more demand.
“Whereas, there aren’t that many boundaries in Sydney. It’s a little bit landlocked by the Blue Mountains, Hawkesbury and national parks, but otherwise, there’s potential for growth.”
Tulip says if there is any movement to Sydney’s ranking, it will be against Vancouver.
“Sydney passed Vancouver a few years ago but it’s always sat around the [median multiple score of] 12 or 13 – so it’s relatively close to that city’s property market,” he says.
Domain chief of research and economics Dr Nicola Powell says “it’s possible” for Australia to outrank Hong Kong given the city is close to hitting a $2 million median.
“Sydney’s median house price has grown significantly and the conversation now is when is the market going to pass the $2 million mark?” she says. “So could Sydney outrank Hong Kong? Possibly, but I think what you get in either cities are very different.
“Australia [has] some dense cities and Sydney is one of those, but what you could buy in Sydney is far larger than what you could purchase in Hong Kong.
“If you look at it at a price per square metre stance, Sydneysiders would be far better off than those in Hong Kong because apartments are the predominant supply. But in Sydney, you’d have prime real estate, ocean frontage for some, and a house with a backyard for others.”
As an example of the Sydney market, this two-storey, four-bedroom house in Glenmore Park in Penrith, is on the market for $1.029 million and comes with a spacious yard, a renovated kitchen and laundry.
However, should Sydney’s house prices continue to rise, it will only place more pressure on the “haves and have nots”, Powell adds.
“Focused government efforts, such as increased housing supply and implementing policies to boost density around infrastructure hubs, will improve affordability,” Powell says. “The local government needs to meet the needs of a diverse population … and prioritise a range of housing options.”