The result of Sydney’s property boom: A city of millionaires on the verge of a class divide

Sydney’s relentless property boom has pushed the city into uncharted territory, where every second house owner can now stake the claim of being a property millionaire.

Five years ago, just one in six of Sydney’s 600-odd suburbs boasted a median house price above $1 million. By mid-2016, 323 suburbs had seven-figure price tags.
The biggest surge of entrants to this once-exclusive million-dollar club happened in the past two years, Domain Group data shows. Where five suburbs joined the list in 2011, 72 were added in 2015 and, despite the slowing market, another six debuted in the first half of this year.

Hundreds of thousands of property owners have made a windfall in capital gains that, on a family home, is tax free.
Fifteen years ago, only prestigious areas like Vaucluse and Mosman were in the million-dollar club. Today, much-further-flung suburbs, including Kellyville, Dural and Mascot, have entered the fray of six-figure house prices. The most recent additions include Homebush West, Ramsgate Beach and Dawes Point, which only became eligible after the government sell-off of public housing.
Never has the effect of the property boom been more obvious than in the well-heeled neighbourhood of Rose Bay. It was one of the top performers with 116 per cent growth in the median house price, which has now hit $3.5 million.
Take the case of four-bedroom 31 Dudley Road, Rose Bay, which sold in 2013 for $2.3 million. Less than three years later it sold for a third more than that – $3.06 million under the hammer, Monica Shor, of Ray White Unlimited, said.
31 Dudley Road, Rose Bay.31 Dudley Road, Rose Bay.

“There’s a lot of capital growth in this area – younger families who bought in the last couple of years are selling to reach the next level,” Ms Shor said.
And when you’re at the top of the market, the next level is an additional pool, better views or “something bigger and better” in the same neighbourhood.
Others are staying put and using their equity to renovate.
Over the next three years, Housing Industry Association executive director NSW David Bare forecasts a significant jump in home improvement.
“It’s clearly the increase in prices that means there is more head room for people to renovate,” Mr Bare said.
“Compared to what people paid five or seven years ago, there’s room to renovate and still make a profit. They’re feeling more confident they won’t overcapitalise with an extension, new deck or pool,” he said.

But while many have become property millionaires during the boom, others have never been further from home ownership.
Australian Housing and Urban Research Institute director Steven Rowley says those who aren’t high-income earners face a housing market out of reach. This includes essential workers such as teachers and nurses who are now competing in the rental market.
The City of Sydney’s latest plan to increase the affordable housing stock by another 450 homes has been welcomed by experts, but deemed too small to make a significant difference.
“Unless there is a dramatic increase in the quantity of affordable housing delivered in Sydney, and this will require policy intervention, those on low-to-median incomes will be relying on a big market correction to supply their home ownership needs,” Dr Rowley said.
But this correction would need to be price falls of 20 per cent, if not more, to get first-home buyers back to average levels, Domain Group chief economist Andrew Wilson said.
This means that, short of a massive property market fall – something Dr Wilson said would be “irrational” to predict – home ownership would continue to decline.
“I think we’ve reached the critical mass of price where there will be no recovery from first-home buyers.
“That does change the whole benchmark because entry level is not so much going to the fringe and then working your way back in, it might be just becoming part of a landed gentry whereby property is passed on from generation to generation,” he said.
Or we face a future as a “city that rents just like Europe”, said PK Property managing director Peter Kelaher.
“If you want to have a home you have to move away from your friends, family, community and everything,” he said.
Looking at Manly, a place where people could afford to buy and rent relatively cheaply 10 years ago, he said price increases had pushed it into an area only the rich could afford. Manly is now in the million-dollar club.
And as these areas become more expensive, the city becomes less mobile and separated into those who can and those who can’t afford to buy, University of NSW City Futures research director Bill Randolph said.
“You don’t move from Campbelltown to Leichhardt as it’s too expensive, so we’re crystallising as a very divided city,” Dr Randolph said.
“Over a generation we’ve extended a new class system in Australia, based on the luck of where your parents owned a house.
“There will be a tipping point where it becomes dysfunctional to have such an expensive property market.”
He recommended the tax treatment of property, including negative gearing and a broad-based land tax, as one of the areas in need of improvement. A rental market that was more friendly for long-term tenants was also required.
“Sooner or later politicians will have to come to the table and realise it is an unsustainable situation and there will need to be reforms to the housing market … it should have been done 20 years ago.”
With tenants expected to out-number home owners by 2017, it’s likely the “political clout” of renters will increase, Tenants Union of NSW policy officer Ned Cutcher said.
“There’s a rising understanding that this is a mainstream issue – not just for poor or young people,” Mr Cutcher said.
In cities such as Berlin and Paris, there are reasonable rent controls and tenancy laws, along with a higher proportion of renters.
Their systems work for long-term tenants looking for stable homes in the rental market, something that remains an issue in Sydney, he said.
“Fundamentally, what it comes down to is that the market is driven by landlords with a single interest. They have one or two rental properties and are not ‘portfolio investors’ – they’re amateur property speculators.
“The market isn’t geared towards a relationship between landlord and tenant that would create [this] kind of long-term tenancy.”

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