Affordable pockets in Sydney’s expensive market

There have been plenty of doom and gloom stories in the media lately about property prices in Sydney - not about home prices falling, but rather about the fact that Sydney is becoming so unaffordable that many key workers like nurses, teachers and police officers won’t be able to afford to live in the Harbour City any more.

The latest gloomy take has come from two academics who’ve concluded that property in the Greater Sydney area is basically unaffordable for anyone on a median income and that will remain the case until at least 2031.

However, I’d dispute their findings.

What’s more, I can show you where median-income earners in Sydney can buy an affordable home.

The details

Mustapha Bangura and Chyi Lin Lee are two Sydney researchers specialising in finance and property who recently published a paper in the academic journal “Cities.”

Initially, they’d set out to model whether part-time workers could afford to purchase a property anywhere in the Greater Sydney area.

But after it became clear to them that this was going to be a futile exercise in Australia’s most expensive city, they turned their attention to full-time workers.

According to their paper, this is what they found:

“The forecasted entry affordability shows there is nowhere in Greater Sydney where the mere reliance on NSW median part-time or median full-time income could make entry to the market possible.”

In other words, homes in no Sydney suburbs are currently affordable for a single full-time worker, let alone a part-time worker on median wages.

To work this out, the researchers used an income of $1,500 per week ($78,000 annually) and used an internationally accepted measure that you cannot spend more than 30% of your earnings on housing without it being classified as “unaffordable.”

Part-time workers, who Bangura and Lee allocated a salary of $600 per week ($31,200 annually), “could not buy a property even if they spent their entire salary on housing.”

“The major consequence of median incomes not being sufficient to enter the housing market in Sydney is that households relying solely on their earnings will have limited chances of achieving home ownership,” says Professor Chyi Lin Lee, who teaches at the University of New South Wales.

The paper says, “This means prospective home buyers will require support elsewhere or scale down their housing desire.”

In other words, prospective buyers will need help from the so-called “Bank of Mum and Dad” or continue to rent (which is usually cheaper than buying) in an increasingly expensive Sydney or pack up and move to another city or a region where housing costs are cheaper.

So what’s wrong with this kind of assessment of Sydney’s affordability?

The first problem with Dr Bangura and Professor Lee’s analysis is the income measures they have used - the NSW median full-time income of $1500 a week or $78,000 annually.

I’d suggest the ABS’ “average weekly total cash earnings for full-time persons” (that is, Australians with a full-time job) figure of $1,973.30 a week or $102,611.60 a year is a more accurate measure of the people in Sydney who are actively in the market to purchase a home.

That means single buyers who come up with a 20% deposit would be able to service a mortgage to the tune of $30,783 a year without slipping into “unaffordability.”

The second problem with Bangura and Lee’s research is that less than a quarter of households in Australia’s big cities have one occupant, and for people under 50, census figures show this drops to less than 15%.

That means the overwhelming majority of households containing would be first-home buyers in Australia potentially have two or more sources of income from which to fund a property purchase.

The third problem with the paper is that with property so expensive (by some measures, Sydney is the second most expensive city for housing in the world) and interest rates at 12-year highs many households are now used to putting aside a lot more than 30% of their income for housing costs, so this measure isn’t really as relevant anymore.

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The suburbs where Sydney is not “unaffordable”

It’s hard to argue with Bangura and Lee’s assessment that affordability in some of Sydney’s northern, eastern and southern suburbs is “frightening” for both units and houses.

However, that shouldn’t deter people from aspiring to property ownership in the New South Wales capital.

The research team at Australian Property Update has compiled a list that shows the top 5 affordable areas in Greater Sydney for both houses and units.

This is based on a current annual household income of $109,488 - which is well below Sydney’s median household income (estimated to be $115,700 annually back in 2021 at the time of the last national Census). 

The most affordable suburbs for houses are all in the Blacktown Council area, led by Tregear, where median values are $689,745, followed by Lethbridge Park ($727,824) and Blackett ($729,997).

For units, Carramar in the Fairfield local government area offers the lowest entry point at $413,189, followed by Regents Park ($439,277) in Cumberland Shire and Lakemba ($464,536) in Canterbury-Bankstown.

What you’ll see from the above table is that many potential buyers have also noticed the affordability of property in these suburbs and they’ve already pounced.

While CoreLogic says the median rise in values for homes across Sydney as a whole was 6.3% over the last year, high demand in these “affordable” suburbs pushed up values by as much as 20.5% for houses and 11.8% for units.

Rentvesting

The other thing to consider is the trend towards “rentvesting”, where people buy a property where they can afford one, but rent where they want to live.

The highly attractive rental yields available in some of the suburbs where we’ve listed apartments show that if you choose carefully, Sydney can also be a great place to invest.

For example, a tradie who lives and works on the Northern Beaches but can’t afford to buy an apartment in Manly could instead consider buying an investment unit in Lakemba, Merrylands West, or Rosehill.

With rental yields of more than 6.0% on offer, that means excellent cash flow to service their mortgage while building strong capital growth and having a foot on the property ladder in the supposedly “unaffordable” Sydney market.