Does the housing dollar buy more in Melbourne?

Yes! Compared to Sydney, you get 11 km closer to the city centre in Melbourne and pay $70,000 less!

The Financial Review ran an interesting article on Saturday titled Only units deliver median inner glow. It’s paywalled, but I’ve made two graphs (click to enlarge) based on information it presents in a table on house and unit prices. The data was compiled by RP Data.

The Financial Review’s emphasis was on affordability however the sophisticated readers of this blog will appreciate that there’s a more interesting story here (although with a caveat – I haven’t seen RP Data’s full set of numbers as they’re subscription only).

Figure 1 (based on numbers prepared by RP Data)

Figure 1 shows that a buyer has to travel 23 km from the CBD in Sydney in order to obtain a house at the median price of $500,000. However in Melbourne the median house costs considerably less – $430,000 – and, more importantly, you only have to go 12 km out to find it. All this even though the population difference is only around 500,000 people – 4 million in Melbourne vs 4.5 million in Sydney.

Thus the bundle of locational services available in Melbourne for the dollar is significantly better than in our older sister up the Hume. Those services relate to the special attractions of proximity to the city centre – high level corporate and government jobs, recreational and cultural facilities, private schools, entertainment, etc.

The value of the city centre is brought home by that quintessential icon of Melbourne, the footy. The only place you can attend an AFL game within Melbourne nowadays is in the centre. And being 12 km from the CBD will usually be a better location than points further out for accessing Melbourne’s wealth of suburban jobs and for being closer to family. No wonder migrants are beating a path to Melbourne rather than Sydney.

An equally interesting but more challenging question (because I don’t have any other data) is why this is so. It appears the distribution of house prices in Sydney is flatter than it is in Melbourne.

I’ll speculate that this reflects the markedly cheaper development costs in outer Melbourne compared to Sydney, where geographical constraints (harbours, hills, oceans, rocky ground) and higher development contributions lessen the differences between the outer and inner areas.

Another explanation could be that cities like Sydney (and Perth) have more high-amenity locations in the suburbs, like ocean beaches, than Melbourne (or Brisbane). If so, this might contribute to the flatter distribution of house prices in the former cities.

Figure 2 (based on numbers prepared by RP Data)

Melbourne seems to be doing something right when it comes to affordability – I’m surprised we don’t hear more about that from the Government.

The data on units shown in Figure 2 runs in the other direction. The median unit is closer to the CBD in Sydney than it is in Melbourne. I’ll speculate that this is a because of the high concentration of units in premium locations in inner Sydney, especially around the harbour and CBD.

But I’m only speculating. I’d appreciate hearing other views. Perhaps someone’s even done, or knows of, some good research on this issue.

3 Comments on “Does the housing dollar buy more in Melbourne?”

  1. Benno says:

    What if the Sydney analysis was done but this time with median house price with distance west from the coast? Here I’m thinking about the northern beaches being ages away from the cbd with high property prices.

    • Alan Davies says:

      Leaving out the north shore, northern beaches, Georges River, the National Park,etc, what’ve you got left? Not much I suspect. Maybe Parramatta would be a bit of a spike because its a large suburban centre by Melbourne standards but that’s about all. So other things being equal I’d expect the “western median” to be closer in.

  2. […] as I said here, you can buy a house at the median price in Melbourne 12 km from the CBD, whereas in Sydney you […]

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