Overview of Greater Sydney Region’s Past and Current Housing Affordability Situation

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The purpose of this briefing is to provide an overview of the Greater Sydney region’s past and current housing affordability situation. Key concerns and current policies will be outlined, so as to ensure that effective housing affordability solutions are implemented. This discussion will be supported by analysis of international case studies and pieces of various academic literature. It is recommended that the information provided in this briefing be taken into consideration when establishing new housing affordability policy directions for the Greater Sydney Region.

Housing affordability refers to a household’s ability to pay for the rent or purchase of a home. It can be simply measured using a ratio of housing price and household income. There has been a 78% increase in Sydney’s price to income ratio between 1980 and 2015, indicating that the city’s housing affordability issues have heightened over time (Thomas & Hall 2015). Housing affordability shapes and is shaped by a range of factors including social justice, taxation, and economic changes. Collaboration with various policy makers is therefore essential to ensure that an effective and long term solution is employed.

The two fundamental factors contributing to housing unaffordability are weak supply and strong demand for housing. Rapid population growth in Sydney, by natural increase as well as overseas migration, has placed additional pressure on housing supply. Between 2017 and 2018, Sydney’s population increased by 93,400 people, a growth of 1.8% (ABS 2018). It is expected that the population of NSW will reach 9.9 million people by 2036 (Department of Planning and Environment 2016). Restrictive and complex planning controls, as well as the finite nature of land, has also contributed to an insufficient supply of housing. In June 2011, the National Housing Supply Council estimated that there was a gap of 228,000 dwellings between the supply and demand of housing (Thomas & Hall 2015).

It is important to note that simply increasing the supply of housing is not an effective solution to address affordability concerns. Demand side factors should also be considered. Relatively low interest rates have resulted in increased borrowing capacity, increasing demand for housing. Those who were previously unable to afford a mortgage may now be able to, given Australia’s current economic state. The introduction of tax and welfare settings that encourage home ownership (e.g. first home buyers incentives and capital gains tax exemptions for family homes), and tax setting that encourage investment in housing (e.g. capital gains tax discount and negative gearing) have contributed to this.

Greater Sydney is “one of the least affordable housing markets globally and is the least affordable Australian city” (Greater Sydney Commission 2017, p. 68). The median price for a detached dwelling in Greater Sydney’s exceeds $1 million and is over 10.5 times the average annual household income (GSC 2017). Prior to the 1970s, a household earning the median weekly wage would be able to purchase an average priced house in Sydney. However, by the early 2000s, this same household would require a deposit of 3- 4 times its annual income to afford the purchase (Yates 2008). Furthermore, research indicates that “about half of young Greater Sydney residents are considering leaving Greater Sydney within the next five years, with housing affordability being a key issue” (GSC 2017, p. 72).

It is evident that housing affordability is a very real and significant issue that must be addressed. It plays an important role in shaping the career and lifestyle choices of individuals. The implications of housing unaffordability extend beyond merely the ability to afford a home, as it can impact the general quality of life of individuals, and raises various social equity issues.

Sydney’s current housing market

There has been a notable shift in the proportion of rental to owned housing in Sydney. The proportion of rented dwellings within the region rose by 2.5% between 2011 and 2016 (ABS 2016). Today, approximately one third of Greater Sydney’s housing stock is rented, another third is owned outright, and the remaining third is owned on a mortgage. Additionally, the demand for unit and apartment style housing has increased, and demand for detached dwellings has decreased. Data from the 2011 Census shows that 60.9% of occupied dwellings in Greater Sydney were separate houses (ABS 2011), while in 2016 this figure was 56.9% (ABS 2016). Housing in Sydney’s inner city suburbs is predominately rental tenure, with approximately 60-70% of housing in this region rented. There is a wide diversity of renters, from students and young families to professionals and migrants. Sydney’s North Shore, on the other hand, has a strong concentration of houses owned outright. In Sydney’s North West, housing is primarily owned on a mortgage, often by young couples and families. Residents living in this area are therefore more significantly impacted by interest rates. In 2012, interest rates decreased in Australia, making debt cheaper and more easily accessible. As people were able to afford to borrow more money, housing demand increased dramatically. Consequently, there was a shortage in housing supply, causing housing affordability issues across the nation.

Housing stress

People who spend more than 30% of their income to meet housing costs are considered to be in a state of housing stress. It is important to note that 30% of an income is significantly different when it is $40,000 per annum then when it is $140,000. Hence, using the 30/40 rule, a household is considered to be in housing stress if it must pay more than 30% of its total income on housing costs and is within the bottom 40% of income earners (Thomas & Hall 2015). Housing stress is inevitably most felt by lower income renters. Additionally, although housing stress is experienced across Greater Sydney, it is most concentrated in the west of the city, where land and house values are low (Randolph & Holloway 2002).

Over 1.2 million Australian households were considered to be experiencing housing stress in 2007 (Yates 2008). The proportion of households experiencing housing stress increased from 24% to 28% between the mid 1990s and the early 2000s. This occurred during a time in which economic growth and average household incomes were, in fact, increasing (Yates 2008).

It is important to note that a large majority of households facing ‘housing stress’ rent, rather than own their home (Yates 2008). Due to the unaffordability of housing in Sydney, these households are unlikely to ever enter into home ownership. “The growing presence of the ‘lifetime’ renter also underlines a strong need for more strategic approaches which acknowledge, support and foster a stronger long-term affordable rental sector” (Burke et al. 2007, p. 112). Greater Sydney’s housing and urban policies should focus more on the supply of affordable rental housing for these ‘long term renters’, rather than solely focusing on increasing home ownership figures.

Affordable and social housing provision

Affordable housing is provided for low to moderate income earners by governmental and not-for-profit housing providers, as a means of enhancing housing affordability. Rent is set to approximately 25 – 30% of a household’s income. Social housing is a form of affordable housing intended for those at highest ‘housing stress’ and social disadvantage. Both federal and state governments provide social housing, however, the limited supply of social housing stock has been unable to meet the increasing demand for it. There are approximately 60,000 households across Sydney still on social housing waiting lists (Sydney Alliance 2019). In Australia, only about 4.4% of housing stock is social housing. In comparison, 18.2% of housing in the UK is social housing, and in the Netherlands, this figure is 33% (AHURI 2017b). These figures indicate the need to increase the provision of affordable and social housing in Sydney.

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Young and low-income households

A significant implication of housing unaffordability is that it can discourage potential purchasers, especially young or single-income households, from entering home ownership (Yates 2008). Many young people in Sydney either do not own a home at all, or delay entry into home ownership. In contrast, 90% of Australian adults owned a home during the 1950-60s (Beer, Kearins & Pieters 2007). Recent debate surrounding housing affordability has primarily focused on the inability of young people to enter into the property market. Whilst this is most definitely a significant issue, it is important to also consider the challenges faced by low and medium income earners, who must compete with high income earners for housing in areas with good access to employment opportunities (Thomas & Hall 2015). A study conducted in 2017 found that of the 13,447 private rentals listed for rent in Greater Sydney region on a given night, only 26 properties were considered affordable for a household living on Centrelink income support payments. Moreover, only 625 of these were affordable for those living on the minimum wage (Parliament of Australia 2019).

Spatial disadvantages

Another key concern is that housing within the Greater Sydney region is often not being built in locations where new jobs are being created. There is a spatial mismatch between supply and demand of housing as there is a concentration of jobs within Sydney’s CBD, however, housing is primarily built in outskirt areas. The absence of affordable housing close to Sydney CBD has resulted in long commutes for those who work in the CBD but can only afford to live in the outer regions of Sydney, where housing is more affordable. Urban policies that improve the appeal of certain areas of land may be effective in reducing the high demand pressure on the land that is in short supply (Yates 2008). This can be achieved by adopting strategies to improve the provision of infrastructure and services in areas such as Sydney’s western suburbs.

Current policies

There are a range of housing affordability policies and programs currently in place across Sydney. Additionally, many targets and proposals have been outlined in The Greater Sydney Commission’s ‘A Metropolis of Three Cities’ strategic plan. A number of these policies and proposals are outlined below. New policy directions should capitalise on these current interventions, to deliver a cohesive and coordinated solution.

Greater Sydney Commission: A Metropolis of The Cities

The Greater Sydney Commission’s ‘A Metropolis of Three Cities’ plan has placed a strong focus on housing, and in particular, the provision of affordable housing. The plan aims to improve housing affordability in Greater Sydney, so as to enhance liveability across the region. The plan outlines “increased housing completions (by type)” and “number of councils that implement Affordable Rental Housing Target Schemes” (GSC 2017, p. 46) as two key performance indicators of successfully ‘housing the city’.

This plan was Sydney’s first strategic plan to explicitly mention affordable housing provision and set a specific target for the region. The plan has proposed a 5 – 10% affordable housing target for all new residential floor space, with the opportunity for local councils to increase this target if feasible (GSC 2017). Strategy 11.2 of the plan outlines that “state agencies, when disposing or developing surplus land for residential or mixed-use projects [will] include, where viable, a range of initiatives to address housing diversity and/or affordable rental housing” (GSC 2017, p. 72).

Moreover, the Greater Sydney Commission has stated that they will “work with the NSW Department of Planning and Environment to develop the mechanisms required to implement the proposed Affordable Rental Housing Targets” (GSC 2017, p. 71). The metropolitan plan proposes to adopt a streamlined approach to the implementation of affordable housing programs under the 2009 State Environmental Planning Policy (Affordable Rental Housing), and the State Environmental Planning Policy (SEPP) 70 (Affordable Housing). SEPP 70 (Affordable Housing) allows councils to impose affordable housing requirements within their council area, so as to increase the supply of affordable housing across NSW. Affordable housing is delivered through planning incentives, inclusionary zoning, monetary levies, and rent caps.

Inclusionary zoning

Inclusionary zoning is a convenient and accessible policy direction used by local councils to encourage and incentivise the inclusion of affordable housing in residential developments. For example, the City of Sydney council requires 2% of residential space in Ultimo and Pyrmont to be developed as affordable housing. If a developer chooses not to meet this requirement, an affordable housing levy must be paid instead (AHURI 2017a). It is expected that inclusionary zoning will deliver 330 affordable housing dwellings within the Green Square redevelopment area (AHURI 2017a). Green Square is a recent urban renewal precinct located about 4km south of Sydney CBD. Developers proposing a development within this area may either provide a certain amount of affordable housing within their development or “pay an equivalent monetary contribution to allow housing units to be built elsewhere in Green Square” (City of Sydney 2019). Developers must provide either 3% of total residential floor space as affordable housing, or a contribution of $233.86 per sqm of total residential floor space (City of Sydney 2019).

NSW ‘A Fair Go for First Home Buyers’ package

The NSW Government released the ‘A Fair Go for First Home Buyers’ housing affordability package in 2017, aiming to support and encourage first home buyers. In addition to increasing supply of smaller and more affordable dwellings, this package introduced the following strategies (Department of Premier and Cabinet 2017):

  • Stamp duty exemptions on all new homes up to $650,000, and stamp duty relief for homes up to $800,000;
  • $10,000 building grant for new homes up to $750,000;
  • Tighter controls to ensure foreign investors pay higher duties and land taxes; and
  • Removal of insurance duty on lenders’ mortgage insurance

Case studies

London – Affordable housing

The 2004 ‘London Plan’ introduced a 50% affordable housing target for developments with a minimum of 15 residential units (AHURI 2017a). The development application process for developments that meet this target can also be 'fast tracked', thereby providing an additional incentive to developers. A similar strategy could be integrated into Sydney’s affordable housing policies, in order to boost the development of affordable housing. The 50% affordable housing target was again highlighted in the city’s 2018 strategic plan. Over the next 20 years, 66,000 new homes are planned to be built each year, with 43,000 of these set to be ‘genuinely affordable’. The plan proposes to meet this goal by improving the efficiency of the use of London’s limited land. Increasing levels of basement development, and conducting small scale basement excavations are two key strategies identified to achieve this.

San Francisco – Housing funds

Many US cities have established ‘housing trust funds’ that receive public financial support to facilitate the provision of affordable housing. In 2010, almost 700 local government housing trust funds were put in place across the country, generating a total of $US1.6 billion each year (City of Asheville 2015). The ‘Bay Area Transit-Oriented Affordable Housing Fund’ was established in San Francisco, so as to ensure residential development within the Bay Area region is not only affordable, but also accessible. In 2015, 31% of households within the Bay Area were paying over 35% of their income on housing (Bay Area Transit Oriented Affordable Housing 2019). This program provides financial support for the development of affordable housing in close proximity to major transport connections. A transit oriented approach could be taken when creating affordable housing policies. This may assist in reducing Sydney’s current spatial disadvantages, as outlined above.

Conclusion

This briefing has provided an extensive overview of Greater Sydney’s current housing affordability condition. The key concerns, current policies, and future opportunities regarding housing affordability have been outlined, so as to ensure that effective solutions are implemented. The information, case studies and literary analysis provided in this briefing should be of assistance in shaping the creation of new affordable housing policy directions for the Greater Sydney region.

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Overview of Greater Sydney Region’s Past and Current Housing Affordability Situation. (2022, December 27). Edubirdie. Retrieved April 17, 2024, from https://edubirdie.com/examples/overview-of-greater-sydney-regions-past-and-current-housing-affordability-situation/
“Overview of Greater Sydney Region’s Past and Current Housing Affordability Situation.” Edubirdie, 27 Dec. 2022, edubirdie.com/examples/overview-of-greater-sydney-regions-past-and-current-housing-affordability-situation/
Overview of Greater Sydney Region’s Past and Current Housing Affordability Situation. [online]. Available at: <https://edubirdie.com/examples/overview-of-greater-sydney-regions-past-and-current-housing-affordability-situation/> [Accessed 17 Apr. 2024].
Overview of Greater Sydney Region’s Past and Current Housing Affordability Situation [Internet]. Edubirdie. 2022 Dec 27 [cited 2024 Apr 17]. Available from: https://edubirdie.com/examples/overview-of-greater-sydney-regions-past-and-current-housing-affordability-situation/
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