Beneath the breathless commentary about the dozens of new million-dollar suburbs in Sydney and Melbourne lies one uncomfortable truth: these cities are becoming increasingly polarised between those who have and have not.
Those who bought houses several years ago will feel the satisfaction of watching the median house price in their suburb creep towards or above the magic million-dollar mark.
For those who are renting, the news will only add to the despair of getting a foot on the ladder, or remaining rent-payers for years -- or at least until the baby boomers pass on.
Despite state and federal government rhetoric about ensuring affordable housing, prices have risen beyond the reach of households on average incomes.
Whether or not we are in bubble territory, six years of low official interest rates have fuelled the latest boom in house prices, capped off by another rate cut last week.
At least one more easing from the Reserve Bank is likely, regardless of what’s going on in the housing market, to try and jump-start moribund business and consumer confidence hurt by a year of chaotic government.
The RBA is in a bind. It feels it has to cut rates to match the latest easing round globally, or else the yield differential will become too large and the Aussie will start to rally again. Domestic rates are still higher than in most other developed economies. At the same time, it risks reigniting the Sydney house bubble.
In the past, central bank officials have played definitional games and argued there is no housing bubble because there is no national housing market. Instead, Australia has a collection of various housing markets, some hot and some not. Sydney and Melbourne are in the first category; smaller capitals, Port Hedland and other mining towns in the second.
According to HSBC chief economist Paul Bloxham, Australia-wide house prices have risen by 23 per cent over the last two-and-a-half years. Sydney prices are up 33 per cent.
Supply restraints have also contributed to the rise, including council restrictions on land and expensive infrastructure on the fringes ($600m for 8kms of railway track and two stations north of Epping in Melbourne) and high stamp duty costs.
Last year’s house price boom has propelled the median house price in one-quarter of Sydney’s suburbs over $1 million. One in four suburbs (204 out of 800) from the Shire to Strathfield in the west have joined what used to be an exclusive club. The median across Sydney rose 14 per cent to $837,786.
Melbourne has one-fifth of its suburbs (59 out of 300) hitting the million-dollar median, according to the Real Estate Institute of Victoria, as house prices rose 3.4 per cent last year to a median of $669,000.
That’s nice for homeowners, but buyers will have fewer options and may need to push out from the city centre, or remain close to town in a smaller property.
As the median house price tops more than eight times median household income in Sydney and Melbourne, we are already living in the second-most expensive housing market globally, according to the Bank for International Settlements.
Real wage growth is near historic lows and can’t possibly keep pace with this sort of house price growth. Housing is becoming increasingly unaffordable.
At current record low mortgage rates, a loan of $900,000 to buy an average million-dollar house in one-quarter of Sydney requires monthly repayments of $5,339 for 30 years.
A couple, with one earning the average male wage and the other the average female wage, would qualify for a loan of $634,000 with monthly repayments of $3,365. Not nearly enough to buy one of those million-dollar homes.
First home buyers are increasingly renting their residence, while buying an investment flat to get started. The value of investment loans was up 17.9 per cent in December from a year earlier and is now double the level in 2011, Australian Bureau of Statistics figures out yesterdayshow, while first home buyers as measured by the ABS remain near a record low.
As cities from Sydney to Vancouver and Long Island near New York City are finding, Chinese buyers with deep pockets are contributing to a surge in house prices that makes it difficult for people earning regular incomes to afford. SMSFs and other domestic investors have compounded the problem here.
When rates inevitably rise, financial stress may become apparent.
The growing number of suburbs in the million-dollar club should not be a cause for celebration. It should be cause for dismay.