Sydney, Melbourne among top five least affordable cities to buy a home

Australia’s house prices are among the least affordable across the globe, with new data revealing Sydney and Melbourne sit in the top five least affordable cities for local home buyers.

Demographia’s International Housing Affordability 2022 Edition revealed Sydney was the second least affordable city to buy a house, with the median price 15 times more than the average household income in 2021.

Sydney house prices are the second least affordable in the world, according to the Demographia survey. Credit: Michel Bunn

The harbour city was beaten only by Hong Kong, where house prices are 23 times the household income.

Melbourne came in as the fifth least affordable city, with the median house price now 12 times the average household income.

Other Australian capitals were also considered “severely unaffordable”, as they had house prices more than five times average incomes.

Adelaide, which has a median price eight times the average household income, and Brisbane and Perth, with house prices seven times higher than incomes, were included in the top 20 least affordable cities across the globe.

Overall, the report revealed that the number of markets considered severely unaffordable rose by 60 per cent in 2021, compared with 2019, before the pandemic struck.

At the same time, the number of markets considered affordable or moderately affordable declined by nearly two-thirds.

The cities have become part of an “unprecedented deterioration in housing affordability”, report author and senior fellow at the Urban Reform Institute in Houston Wendell Cox wrote.

“It is not surprising that in this environment, many middle-income and lower-income households have sustained deteriorating standards of living, and the causes of this do not bode well for the future,” he stated.

Melbourne was the fifth least affordable city in the world to buy a house, according to the Demographia study. Credit: WayneTaylor

AMP Capital chief economist Shane Oliver said middle-income earners could find it increasingly difficult to get into the market, particularly as inflation pressures grew and interest rate rises hung on the horizon.

“It’s only a matter of time before the RBA [Reserve Bank of Australia] starts to raise rates,” Dr Oliver said. “It will make it harder for middle-income earners to be able to get into the market – especially when house prices go up by 22 per cent in a year [nationally].”

Incomes have not kept pace with house price rises. Sydney has seen the median house price jump by 33.1 per cent over 2021 to $1,601,467. Melbourne’s rose by 18.6 per cent to a $1,101,612 median, Domain data showed.

Even if Sydney and Melbourne’s prices fall, they will still be at historic highs, Dr Oliver said.Credit: Peter Rae

“Sydney and Melbourne are the worst in terms of affordability,” Dr Oliver said. “But it’s just a continuation of the theme that’s been there for years, but became worse because of the pandemic.”

There was some light at the end of the tunnel, with signs the Sydney and Melbourne markets were starting to weaken, Dr Oliver said. However, even if house prices fell by 10 to 15 per cent over the next 18 months as predicted, they would still be at historically high levels.

“They’ll still be unaffordable,” he said.