Inner-City Sydney Housing Affordability

Property prices in Sydney’s inner city and inner west rose again in the first two months of 2020, taking them back to near where they were during 2017’s market peak.

And when Sydney prices rise, talk of housing affordability always follows.

With that in mind, we thought we’d look at just how affordable property in the inner West compared to the past decade. The results may surprise you.

Where the market stands right now

Price data from realestate.com.au reveals the median apartment price for a one-bedroom flat in Alexandria in March 2020 is $635,000 and for two-bedroom apartments it’s $838,500. For around those amounts, you could buy 94/57 Ralph Street or 3/111 McEvoy Street. The average house price stood at $1.51 million.

Next door in Erskineville, the average apartment price was $880,000. For houses, it was $1.35 million.

This means if you'd bought in Erskineville in 2013 - when the average house price in Erskineville was $920,000, your capital growth would be close to 47%.

That’s really great news if you happened to buy seven years ago. But even if you didn’t, there’s still cause for optimism.

Interest rates at an all-time low

The headline sales figures only tell one side of the story. Most people fund their home with a mortgage and, right now, home loan interest rates are at all-time lows. That’s partly because of the RBA’s all-time low official cash rate but it’s also because there is now so much competition in the lending market.

Today, it’s not uncommon to get an interest rate on your home loan that’s under 3%. At the start of 2013, the average variable rate was 6.13%, according to RBA data. This alone counts for a lot.

If you were to borrow 80% of the average Erskineville house price at the average standard variable rate in 2013, your repayments would be $4,523 a month on a 30-year loan.

If you were to buy the same average property in 2020, and get a home loan at 3% mortgage, your repayments on a 30-year loan would be $5,063. While that’s $540 a month more, it’s easily accounted for by wage growth - even at the slower than usual rates we’ve had over the past seven years.

More desirable area than ever

On top of this, Sydney’s inner-city keeps becoming a more desirable area to live. Already one of the most convenient places to possibly live, we’re getting some of Sydney’s best infrastructure, including new schools and soon to be opened new metro.

In the past seven years, we’ve also added some great restaurants and foodie destinations, cafes, bars and nightlife venues.

While we are experiencing an interruption to that lifestyle, when the current coronavirus lockdown passes and life returns to normal, you’ll once again be able to enjoy the fantastic amenities our area offers.

I’d argue that when you buy into inner-city Sydney today, you’re buying into a better area than seven years ago - and it was a great place to live back then.

The real challenge: raising a deposit

While housing affordability may not have changed much over the past seven years when it comes to paying off a mortgage, what has become harder is saving a deposit.

Here, first home buyers are at a disadvantage.

If you’re buying your first home in Alexandria and it’s a one-bedroom apartment, you’d need to get together $127,000 for a 20% deposit. That’s no easy feat. It’s why the First Home Owner Grant, stamp duty concessions and the federal government’s new First Home Loan Deposit Scheme matter so much. It’s also why we need banks to be flexible and why new competition from less rigid non-traditional lenders is welcome news.

The final word

While housing affordability is always on Sydney-siders minds, the reality is that it hasn’t necessarily become more difficult to service a mortgage over the past seven years at all. What has become more challenging is saving a deposit - there’s no doubt our first home buyers have a challenge trying to get their first foot on the property ladder.