Distance versus dollars

Buyers seeking an affordable detached home may not necessarily have to look in the outer fringes of the city. The range in house prices located similar distances from the city can be quite extraordinary.

Housing affordability is an issue that is likely to be with us for the foreseeable future. Home ownership is becoming more expensive (last year the average capital city home increased in value by 12.1%) and price sensitive buyers are likely to be the ones that are primarily feeling the pinch.

This is especially the case now that the boost to the First Home Owners Grant has been removed and interest rates have increased by 150 basis points since last October.

For developers, delivering affordable housing stock to a price sensitive market is a real challenge. Median house prices are above $400,000 across all the mainland capitals and range as high as $602,250 in Sydney. Also, many new development projects are hampered by high government charges on development and in many instances this cost is passed on to the end user (the purchaser).

If we undertake an analysis which looks at the most expensive suburbs and the most affordable suburbs by particular distances from the CBD you can see there are still relatively affordable houses available within a reasonable distance from the capital cities. The issue for some buyers is that the more affordable options closer to the city are generally not going to be modern homes with a media room, ensuite and enclosed double garage. Rather, the affordable homes close to the city are likely to be more than 30 years old and have some maintenance issue, but they will probably be on larger blocks of land. For buyers, particularly those seeking to owner occupy, this can be a real dilemma – buy a modern home further out or a modest home closer in.

In Sydney, houses can be purchased for less than $600,000 within 10 kilometres of the city if you look in Sydenham. In Perth you can buy a house within the inner ring for less than $420,000. Meanwhile, within 10km from the Melbourne and Brisbane CBD you can receive change from $400,000 whilst in Adelaide’s inner ring suburbs there are suburbs with a median house price as low as $264,000.

On the other hand, it is interesting to see the most expensive median prices as you move further from the city. In some instances these house prices are pushed upwards because the suburb is located adjacent to the coastline, a river or lake or there is a predominance of acreage blocks; but it is surprising to see just how high some of the prices are in locations further away from the city centre where you would expect prices to be more affordable. Especially considering that in many instances as you move further away from the city centre the options for public transport, efficient arterial road networks and essential services become more scarce.

If we undertake a more detailed analysis of median prices based on the current city-wide median prices and the number of suburbs with a median price above or below that by the distance from the CBD the data tells a very interesting story.

In all five cities the chances of purchasing a house at a price below the median within 10 kilometres of the city are quite small. Adelaide offers you the best chances with 21% of suburbs within 10 kilometres of the city having a median price below $406,500. Perth (15.3%) and Brisbane (13.4%) also offer a greater number of opportunities than Sydney or Melbourne.

Looking at suburbs between 10 and 20 kilometres from the city in all cities more than a quarter of the suburbs sitting within these this 10 kilometre ring have a median price below the city’s median. In fact, in Adelaide and Perth more than half the suburbs have a median house price below the respective metro area median.

As you continue to move further away from the city houses tend to get more affordable. It is important to remember however, that just because a suburb has a median price below the broader metropolitan region median doesn’t necessarily mean that it is going to be affordable. Especially when you consider that in each city analysed the median house price is above $400,000 and in some instances it is significantly higher.

The analysis highlights that although median prices are a good benchmark, you certainly need to dig much deeper than just a city or suburb’s median price when looking to make a property purchase decision.

Generally the further away from the CBD you venture the more affordable prices become although this is not always the case, with some new developments recording significantly higher median prices than those within established suburbs. Clearly many buyers prefer a brand new home and are prepared to pay a premium to live in such a property. For investors these properties also come with the added benefit of depreciation.

For more affordable options closer to the city look for the less publicized and less glamorous suburbs that may be gentrifying. In many instances the amenity level is extremely good and you can secure a house at a comparatively affordable price.

Tim Lawless is the Director of Property Research at RP Data.