Sydney Property Market spreads price shocks to other Capital cities

The property market of Sydney creates shocks that are felt in other capital cities, and researches from the University of New South Wales show that Hobart is the one that feels those shocks the most. The study covered all eight Australian capital cities. Perth and Darwin’s housing market seemed to be the least affected by shocks that appear in other capitals.

Glenn Otto, the Associate Professor who conducted the research says that he doesn’t think of the Australian hosing markets as completely isolated. He also states that, whatever is happening in Sydney, doesn’t have implications for what happens in the other housing markets.

Professor Glen examined the data on the median house rents and prices, from the 1980s up to 2015, data which is released quarterly by the real estate institute of Australia. His model shows how the variations in rental returns and capital gains In each city, affects the returns in other cities, over a yearly period. He states that historically, we don’t see a big share of the Melbourne and Brisbane type of shocks, aren’t felt in other markets.

These spillover effects to the housing markets of different capital cities, has been increasing gradually since the mid 90s and account for about 40 to 50% of the difference in forecast property returns to units and houses.

Professor Otto says that occasionally, you’ll get predictions that we’ve built too many houses and units in the Melbourne housing market and there’s a lack of demand specific to those markets, so price correction is to be expected. He also says that the thing he was interested in most, when looking at the historical data, was the extend of that correction wasn’t specific to one market, but was also felt in other markets.

The research also covered the split between units and houses. And even though there wasn’t a big difference in results for the two different living types, and the cities most affected by the shocks in terms of units were Hobart and Brisbane, and the ones affected most in terms of houses were Hobart and Canberra.

Professor Glenn also plans to research what causes these spillovers and what can that tell us about the rapid changes in Australia’s housing market.

“Australian cities are very isolated so we shouldn’t be expecting people to be moving between cities because of the changes in property prices. However, what we might see is investors reconsidering where they want to buy and sell property.” - says Professor Glenn.

That being said, investors may play an increasingly crucial role in the housing market, and maybe that is one means by which we can see this kind of effect be transferred from one city to another.

This research was funded by an Australian Research Council Linkage Project Grant.