Here's the chart in the RBA's submission that suggests Sydney prices are still relatively cheap

Hamish Blair/Getty Images

The RBA’s submission to the House of Representatives Standing Committee on Economics inquiry into home ownership called for a review of the current arrangements around negative gearing.

But in order to do that the RBA first outlined a number of key points about the current state of the housing market and its performance and changes over the past 20 or 30 years. They also used a lot of charts to explain their thinking.

Of the 28 charts the RBA used in its submission one really stood out.

The RBA and others have, at various points in the past year, said part of the Sydney price surge is related to the doldrums it suffered after the boom and peak in 2003.

But the above chart depicting the ratio of Sydney prices to other Australian capital cities took me by surprise.

It says two things.

  1. Sydney has, for the entire period of this chart, traded at a premium to the other capital cities. That’s a function of its size and urbanisation as well as its geographical constraints. It’s something the RBA’s head of Financial Stability Luci Ellis has often written about when explaining why Australian house prices seem relatively expensive by global standards.
  2. If you believe in mean reversion then Sydney prices may continue to outperform the rest of the country for some time yet.

Obviously this is not a forecast and the list of caveats are as long as your arm. But it is interesting that, for all the talk of a bubble, Sydney property prices are yet to regain their average excess cost, compared to the rest of the nation’s capitals.

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