The lack of affordability in Australia’s largest capital cities is spreading as city investors buy into familiar regional centres, such as Albury.
On a recent roadshow with the Real Estate Institute of NSW, I was struck by the variable performance of the housing markets in key regional centres.
This was very much the case comparing NSW cities Albury and Wagga Wagga.
In many respects both have similar economies, at least on paper. Wagga Wagga is slightly bigger but Albury benefits from its twin city of Wodonga, just across the Murray in Victoria.
Both are inland cities. They sit on the Sydney-to-Melbourne rail line and rely on similar industries including agriculture, manufacturing, government services and education.
The key differences between the cities, at least economically, are Wagga’s much lower unemployment rate and the performance of their property markets.
During the past 12 months, the median house price for Wagga has remained stagnant around $385,000. In Albury, prices have increased by 13.4 per cent to a median $512,000.
Almost unbelievably, Albury’s growth is outpacing many Melbourne and Sydney suburbs.
In most markets, that would be fairly straightforward to explain. Perhaps Wagga has had too much supply or Albury’s economy is growing faster. Maybe more people want to live in Albury but not Wagga. Or perhaps a major industry shut down in Wagga, or the housing stock is simply better in Albury.
The likelier explanation, however, is that Albury has been able to attract Melbourne and Sydney money that Wagga hasn’t.
This same trend is supporting continued strong price growth on the NSW central coast and in Wollongong, where owner-occupiers priced out of Sydney are moving north and south to buy more affordable homes and a great lifestyle. Importantly, they are prepared and able to commute to get it.
Unlike the central coast and Wollongong, Albury’s housing market is being driven by people who’ve come to know the area for its lifestyle and affordability but not necessarily as a place from which to commute to the major capital cites.
Albury’s location between Sydney and Melbourne makes it an obvious place to stop on the long drive between the two cities. Having done that plenty of times, I know Albury very well.
Wagga’s location further inland — 45km farther east of the Hume Highway — makes it less of a hub for Melbourne-to-Sydney travellers and, until recently, I never had the chance or need to go there.
Familiarity with Albury as a city is sparking the interest of people living in Melbourne and Sydney and money is flowing in as a result, which is driving house prices skyward.
A similar thing happens when people holiday regularly in a location. Who hasn’t travelled to Byron Bay and daydreamed about buying there (I frequently do)?
Strong house price growth in tourism areas is only partly because of tourism dollars. It’s also because people are familiar with the locations and, as a result, are more prepared to invest.
I’m sure homeowners in Albury are happy their houses are increasing in value, but that is problematic for first-home buyers and those wanting to upgrade.
Not only are incomes higher in Sydney and Melbourne but the equity many people in those cities have built up in their own homes potentially gives them opportunities to redraw large amounts of money for purchases elsewhere, which makes it hard for locals to compete.
Lack of affordability, particularly in Sydney, is becoming contagious in the bush.
This article was originally published by Nerida Conisbee, REA Group’s chief economist, for The Australian on June 1, 2017.