Is Aussie real estate undergoing the Manhattan effect?

During late 2015 Sydney’s inner ring house price rose above $1.5m and the middle ring above $1m, which made the real estate within 20 kilometres of the CBD too expensive for 90 per cent of Australians based on their ability to service loans anywhere beneath the nationally recognised 30 per cent of household income.

According to Corelogic RP Data we are seeing a clear Manhattan effect, with Sydney’s exclusive inner ring affordable only for household earners above the $250,000 mark to service a typical 30 pre cent loan.

An even more damning statistic from Sydney's once-affordable outer ring shows that most households need to earn a minimum of $100,000 to avoid mortgage stress.

My position, and that of many property investors, is that as Sydney – and to a lesser extent, Melbourne – becomes more expensive young families will consider more affordable suburbs/cities in nearby Brisbane and potentially large regional NSW towns, including regional coastal towns.

Corelogic RP Data shows the gross household income required for the following cities (August/September 2015):

Melbourne

Inner ring: $160,000
Middle ring: $121,000
Outer ring: $76,000

Sydney

Inner ring: $284,000
Middle ring: $187,000
Outer ring: $104,000

Brisbane

Inner ring: $116,000
Middle ring: $86,000
Outer ring: $64,000

These distinct price restrictions are going to have a prolonged effect on Gen Y investors. I’m not predicting that we will have a generation of property ‘non-investors’, in fact, quite the opposite. What I am predicting and what we are already seeing signs of, however, is something I have written about in a previous opinion piece: the rise of the 'rentvestors'.

This property investment trend is presenting definitive data that first-time buyers are getting a foot in the door earlier than ever. Research conducted by Domain shows that the average Gen Y investor buys their first investment property at the age of 25, compared to Gen X at 35 and Baby Boomers at 45.

These young investors are really focusing on buying small and buying at entry level price points that show good cash flow and, more importantly, long-term capital growth projections. Today, 16 per cent of Gen Y investors already own two or more properties, compared to 17 per cent of Gen X and Baby Boomers.

A very real trend we are noticing, which is backed by data, shows that in 2009 the combined Brisbane median price point was $400,000. At the same time the combined Sydney median price point was $490,000. 

Fast-forward to 2016 and we see a very different story, where the combined Brisbane median price point is $490,000 and the combined Sydney median price point is near the $900,000 mark.

Now, we are not predicting a mass exodus of Gen Y from Sydney. After all, Sydney has the strongest economy in the country and looks like providing strong growth in the foreseeable future. What we do see is a continuing trend of savvy rentvestors going where they see value and putting their savings to work in areas that show some distinct mid- to long-term growth.