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Since the GFC, Sydney house prices have grown four times faster than wages

Getty/Christopher Furlong

Despite falling auction clearance rates in Sydney, restrictions on investor home loan lending and persistent chatter that price growth looks set to slow substantially in the months ahead, it wasn’t enough to dissuade prospective Australian home buyers last month with the Corelogic RP Data capital city home value index rising by a further 0.2% in October.

The increase, taking the median house price across Australian capital cities to $590,000, left prices up 10.1% on levels seen in October 2014.

Sydney and Melbourne, influential on the combined capital city gauge because of their large index weightings, rose by 0.3% and 0.6% , leaving the annual increase for both cities at 15.6% and 12.8% respectively.

As the chart below shows, supplied by Corelogic RP Data, the increase has seen the median price in both cities surge by 77% and 66.6% respectively from January 2009.

The gains stand head and shoulders above price movements elsewhere in the country over the same time period, and are massive compared to the rates of growth seen in wages and inflation.

To provide some perspective on just how far prices in Australia’s two largest cities have run, total hourly rates of pay excluding bonuses rose by 18.3% over the same time period, marginally outpacing a 14.52% in consumer prices.

That means that the median house price in Sydney has grown more than five times the rate of inflation, and four times the rate of wages. For Melbourne, those ratios fall to 4.6 and 3.6 respectively.

Last week UBS wealth management released a new global property index designed to track the risk of housing bubbles in global financial centres. According to the index, Sydney ranked behind London and Hong Kong in terms of “bubble risk”, beating out other notable contenders such as San Francisco and Vancouver.

Earlier this year Australia’s Treasury secretary John Fraser told a senate estimates committee that “when you look at the housing price bubble evidence, it’s unequivocally the case in Sydney. Unequivocally.”

While not as blunt as Fraser’s language, RBA governor Glenn Stevens warned earlier this year that the steep rises in Sydney property prices were “acutely concerning”, describing price gains in some parts of the city as “crazy”.

In response to the rapid levels of house price growth, APRA, in consultation with the RBA, took action to stymie investor activity in Australia’s east coast property market, announcing a swathe of measures that included tougher capital requirements for banks and greater restrictions on lending to housing investors.

In its October monetary policy statement the RBA noted that the “regulatory measures are helping to contain risks that may arise from the housing market.”

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