RBA says inner-city housing will forever be expensive

Punters will always pay a lot for hip, cool and funky inner-city dwellings and apartments despite the release of more land and the building of new houses.

That’s the view of the Reserve Bank’s head of financial stability Dr Luci Ellis who gave a real estate presentation in Sydney this week. 

Dr Ellis said Australians do love a backyard for their family, but it would never bring down the price of inner-city housing. 

“Yes, some people like a bigger garden, for privacy or to enjoy in other ways,” she told delegates to the conference. 

“But being in the ‘right’ kind of neighbourhood with the best amenities, close to commercial centres and other services, is more important to most people, if their willingness to pay for it is any guide,” she said.

Dr Ellis said there was only a certain amount of dwellings fitting this criteria at one time meaning supply is fixed, and building new dwellings to increase supply meant they didn’t fit these criteria in the short term because they were, by definition, somewhere else. 

It was this dynamic that drove the prices. 

“The physical reality is that the supply of good locations is more or less fixed in the short term,” she said. 

“So any sizeable boost to demand cannot be fully absorbed by more supply.” 

Dr Ellis gave a great couple of examples in Melbourne and Sydney.

“To give a few examples, in the space of a few decades, suburbs like Paddington, Newtown and Balmain in Sydney or Fitzroy and Northcote in Melbourne went from scary, to edgy, to trendy, to pricey,” she said.

“The housing stock was also renovated in this process, but most of the price action can probably be explained by the rising relative price of those locations.”


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