Sydney’s Housing Crisis: Growing Pains and Local Opposition

Sydney, Australia’s largest city, is grappling with a deepening housing crisis as rapid immigration growth and insufficient supply of new dwellings have led to skyrocketing prices and rents. The New South Wales state government has proposed a plan to boost density by allowing six-story apartment blocks to be built around suburban train stations. However, this solution has been met with fierce local opposition, highlighting Sydney’s challenges in addressing its housing woes.

Sydney’s Housing Crisis

The Housing Affordability Crisis

Sydney’s housing market has become increasingly unaffordable, with the average home now costing 13 times the median household income, up from 11 times in 2019. This has led to Sydney being ranked as the world’s second-least affordable market, after Hong Kong, according to data from Demographia.

CityMedian Price/Income Multiple
Hong Kong18.8
Sydney13.3
Vancouver12.0
Honolulu11.8
San Jose11.5
Los Angeles11.3
Auckland10.8
San Francisco10.7
Melbourne9.9
Toronto9.5

The table shows the highest median price to income multiples among metropolitan markets as of Q3 2022, according to data from Demographia. The median multiple is calculated as the median house price divided by the median household income for each city.

The lack of affordable housing is driving an exodus of people in their 30s and 40s from the city, raising concerns that Sydney could become a place “with no grandchildren,” as warned by the state productivity commissioner. The impact of this crisis extends beyond just housing, as Australia’s $2.3 trillion economy is closely tied to the housing market, with nationwide home prices breaching all-time highs despite recent interest rate hikes by the Reserve Bank.

The Push for Higher Density

To address the housing shortage, the New South Wales state government has proposed a plan to boost density by allowing six-story apartment blocks to be built around suburban train stations. This initiative, known as the Transport-Oriented Development (TOD) plan, aims to increase the supply of housing in areas with good access to public transportation.

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CityPopulationPopulation Density (people/km^2)
Sydney2,0001
Vancouver5,7501
London5,8001
Hong Kong7,0501
New York City11,3001

Supporters of the plan argue that Sydney’s low population density, compared to other major global cities, is contributing to the housing crisis and its associated problems. Philip Vivian, chair of the Council of Tall Buildings and Urban Habitat’s Australia chapter, states:

“Sydney’s density is so low, it’s just not funny. The problem with the city as we have it is it’s clearly inequitable, with workers being forced to live on the periphery, being forced to pay more, travel further to work. It’s unsustainable.”

Local Opposition and NIMBY Protests

Despite the clear need for more housing, the TOD plan has been met with strong opposition from local residents and councilors. Protesters have taken to the streets, waving placards reading “Save Sydney’s Lungs” and “Wrecking Ball Coming to You.” They argue that the proposed increase in density will cause social problems, be destructive to the environment, and threaten the city’s heritage.

Awais Piracha, an urban planning academic and practitioner with Western Sydney University, notes that these protests are primarily occurring in “white areas” with “very strongly organized, very influential” communities, making it difficult to implement planning reforms.

The Greens Party has also launched an inquiry into the TOD plan, with inquiry chair Sue Higginson stating:

“This is a short-term plan. It is a grab to the property development council and lobby and industry.”

The Rental Market Squeeze

With home ownership out of reach for many, younger workers and lower-income households are left with little option but to rent. However, rental costs are also surging, adding to the cost of living crisis.

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CityAnnual Price Growth (%)Annual Rent Growth (Units)
Melbourne4.010.0
Sydney10.610.2
Adelaide11.89.7
Brisbane15.612.3
Perth18.316.5

The table shows the annual price growth percentage and annual rent growth in units for five major Australian cities as of February 2024, based on data from CoreLogic Inc. Brisbane and Perth have seen the strongest housing price increases, while rent growth has been highest in Perth, Brisbane and the two largest cities of Sydney and Melbourne.

Morgan Sawell, a 24-year-old renter, saw his rent shoot up by 41% last year to A$625 per week – half his income at the time. He faced fierce competition for rental properties, with serpentine queues at inspections and at least 25 other people in attendance. Ultimately, he had to settle for a dingy apartment with shared laundry in a different suburb further from the city center.

Challenges in Boosting Housing Supply

In addition to local opposition, other factors are hindering the pace of new construction across Australia. These include:

  • Higher costs of finance, labor, and materials
  • New housing being snapped up by wealthier investors
  • Properties being built in coastal towns and rented on platforms like Airbnb, rather than where they are needed most

To address these issues, some experts are calling for more active investment from the government. Patrick Fensham, partner at SGS Economics & Planning, argues:

“We know the developers will provide housing at the price point at which they can make a profit, so they’re not going to oversupply the market, that’s just not in their interests. We need more government intervention in providing housing supply.”

The Central Bank’s Dilemma

For the Reserve Bank of Australia (RBA), the nation’s housing crisis presents a Catch-22 situation. Higher interest rates have dampened dwelling investment, which helps to cool inflation but exacerbates housing affordability challenges.

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As the RBA considers when to begin cutting rates from the current 12-year high of 4.35%, it must balance the need for additional investment in residential construction with the risk of reigniting inflation. Luci Ellis, former RBA official and current chief economist at Westpac Banking Corp., notes:

“The potential wealth effect of a renewed upsurge in housing prices is unlikely to be the main concern. Rather, the issue at present is the low rate of new production of housing in the context of high construction costs and ongoing, if more moderate, population growth.”

The Way Forward

Despite the challenges, urban planner Awais Piracha believes that for a lasting fix that doesn’t involve ever-increasing sprawl to Sydney’s west, the city will need to embrace more apartments. He states:

“People have to realize that things might have to change if the city is to grow. Not growing is not a good idea.”

However, achieving this will require overcoming local opposition and implementing planning reforms that balance the need for increased density with concerns about the environment, heritage, and social cohesion.

Conclusion

Sydney’s deepening housing crisis is a complex issue with no easy solutions. The city faces growing pains as it grapples with the need to increase housing supply while also addressing local opposition and concerns about the impact of higher density development.

To move forward, Sydney will need to find a way to balance the competing demands of affordability, sustainability, and community character. This will require a collaborative effort involving the government, developers, and local communities to develop innovative solutions that meet the needs of all stakeholders.

Ultimately, the future of Sydney as a vibrant, inclusive, and economically thriving city depends on its ability to address the housing crisis and provide affordable, accessible homes for all its residents.

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