The survey uses median house price to gross annual median household income as the main metric to measure the housing affordability.
Sydney ranked second serverly unaffordable house market with a median multiple of 9.1, Melbourne at 8.0, Adelaide 7.4, Darwin 7.1, Perth 6.9, Hobart 6.8, Brisbane 6.7 and Canberra at 5.8.
The report attributes the reason for the servere housing unaffordability of Australian major cities to be "plan-driven" land use regulation instead of more responsive "demand-driven" process.
The report compares Sydney and Melbourne ("plan-driven" land use regulation) to Atlanta and Dallas-Fort Worth in the United States ("demand-driven" land use regulation). The statistics presented in the report were mind-blowing.
In Sydney and Melbourne, the median mutiple is 9.1 and 8.0 respectively. While for Atlanta and Dallas-Fort Worth is 2.6 and 2.7 respectively.
It takes 6.25 to 14.5 years for the residential land to be designed for development and the completion of the first home in Australia due to the more prescriptive use of land regulation.
The same process in Atlanta and Dallas-Fort Worth takes only 1 to 1.5 years as a result of demand driven process.
If you are unfamiliar with the median multiple metric described above. Try the % of gross annual income used to mortgage on median house price.
Sydney 57.4%
Melbourne 50.4%
Dallas-Fort Worth 13.4%
Atlanra 16.8%
If you are still not convinced, take a look at the monthly mortgage payment.
Sydney $2,968
Melbourne $2,521
Dallas-Forth Worth $790
Atlanta $680
The numbers above speak for itself. The most ironic thing about the comparison is the following:
Population growth in Dallas-Fort Worth was much faster than Sydney which is now nearly 50% larger than Sydney.
Atlanta population is now 50% higher than Melbourne and more than 25% greater than Sydney.
Yet the median multiple for Dallas_Fort Worth was 3.5 in 1981 and it dropped to 2.7 by 2008. For Atlanta, the median multiple remained the same at 2.6.
So what does this tell you about demand for housing in two cities with significantly higher population growth than Sydney and Melbourne?
It speaks pretty loud and clear to me that Australia house market has been in an increasingly dangerous bubble territory owing to the lack of affordable land due to the prescriptive and "plan-driven" adminstrative process.
To share some personal experience with you. I contacted the Kogarah City Council enquiring about criteria on land sub-division in early February 2010. The following was what happened until I received a response in mid-March 2010.
a) I called the council on one Friday afternoon to enquiry about sub-division of land. I was told the person in charge was busy at the time of my call.
I left my contact details and was promised a call back latest by the following Monday.
b) no response until the following Wednesday. I sent an email detailing my enquiry. The email was not replied one-week later informing that the person in charge was on leave.
c) Sent a reply email to request to speak to someone else in the Kogarah council. It was told that the person on leave is the only one knows anything about the sub-division of land. Therefore, I need to wait for the person to come back from holiday. I was also told I would be contacted when the person returns. A date was provided on when the person will return.
d) One week after the supposing return date, there was still no response provided. I had to send an email yet again to see when the council can provide a response.
e) one day later the person called. The phone conversation lasted less than 60 seconds.
A 60-second phone conversation regarding the criterias on sub-division of land took a local council over 6 weeks to respond. You can imgaine how efficient the government works. (Be sure to check my previous post on difference between prviate and public sector).
One more important thing to note about the prescriptive land use regulation.
This is not the "years of supply" of land that matters but the supply of affordable land.
The survey points out:
The prescriptive land use regulation provides land seller and buyer the reliable information on where the development will occur. This tends to significantly raise the price of land and eliminates the supply of affordable land.
By the way, the report defines affordable as having a median house price to gross income ration of 3.0 or below. This figure was last seen in Australia in 1980s. This figure will be an insult to many experts in the property market.
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