This City is Losing $10 Billion a Year From the Housing Crisis: Research

People look at a signboard of a property for sale in Sydney, Australia, on May 5, 2022. (Brendon Thorne/Getty Images)

Sydney’s housing crisis is costing its economy over $10 billion (US$6.4 billion) a year or 2 percent of the city’s annual GDP due to a loss of talent, innovation, and productivity, according to new research.

The urban policy think tank Committee for Sydney in its new report “Chronically Unaffordable Housing” published on Sept. 9 emphasised that the housing crisis in the city was not a short-term problem and was now chronic.

“The costs are being felt most by young Sydneysiders just starting to establish their careers, putting a handbrake on the opportunities that would have been open to them if housing in Sydney was more accessible and affordable,” Committee for Sydney CEO Eamon Waterford said.

“If we don’t take urgent and sustained action, chronic housing unaffordability will continue to erode Sydney’s competitiveness on the global stage and our city’s long-term economic success.”

The report found that Sydney’s median property price is over 13.3 times the five-year median household income. The international benchmark has the median property price at eight times the median income.

It also declared Sydney the sixth most unaffordable city in the world after Hong Kong, San Francisco, Singapore, Vancouver, and Tel Aviv. It sits ahead of New York, London, and Paris.

“There are risks that this will worsen in the coming years. Greater Sydney’s recent supply track record of 6,000 to 7,000 homes per year per million people puts it roughly on par, or slightly ahead of Hong Kong and Toronto, but still well below other highly unaffordable cities such as Vancouver where the rate has been closer to 10,000,” the report said.

According to Demographia rankings, Sydney sits at number two on a list of the world’s least affordable housing markets.

Loss Broken Down

Of the yearly $10 billion loss, $1.5 billion is due to the loss of talent and diminished appeal for potential talent.

Data suggests that Sydney’s appeal to talent has already fallen in the last few years, the report said.

“Over the last seven years, Sydney has already fallen six places from 4th to 10th in the major survey of the top cities where footloose digital talent would choose to move for work,” the report said.

Another $2.9 billion could potentially be lost because of reduced innovation and research and development (R&D).

It notes that chronically unaffordable cities, such as the San Francisco Bay Area, typically lose at least 100 newly funded start-ups every year. Companies also spend less on R&D because costs for talent and land are already high.

But by far the biggest loss is due to productivity, at about $6.8 billion a year.

Sydney could be losing over $1.1 billion every year to inefficient commutes alone, the report says.

Using Toronto as an example, it notes that with one-way commutes, the city has the highest average distance and third longest average commute time in North America.

“As a result, Toronto’s commute time rank has fallen from 21st to 31st among 48 global cities between 2017 and 2022,” the report said.

“Productivity costs based on observed lost days of work due to lateness and tiredness have been calculated at C$2.2 billion per year or 1-3 percent of productivity.”

Further, Toronto’s housing shortage has driven families to move away or out of the area altogether.

This has increased companies’ turnover and hiring costs, as well as increased salary costs due to needing to pay a “premium” for workers to live nearby.

“The trends observed in Greater Toronto, Greater London, and the San Francisco Bay Area highlight that the productivity effects of higher labour costs for business and of inefficient commutes and unrealised spending are at least A$2 billion each,” the report said.

What’s the Action Plan

Three recommendations were put forward to help address the problem, including an inclusionary zoning target (where a proportion of residential development must be affordable housing), more investment into social and affordable housing, and significantly increased overall housing supply with good access to public amenities.

“We can’t solve this overnight, but we can commit to the bold, brave, and long-term program required to send Sydney’s chronic housing crisis into remission and stop future relapses,” Mr. Waterford said.

The New South Wales government’s planning reforms have included incentives for developers that agree to include at least 15 percent affordable housing and exempting social and affordable housing providers from state infrastructure contributions.

Meanwhile, outgoing Reserve Bank of Australia Governor Philip Lowe noted that while interest rates affect housing prices, the bigger reason why Australians suffer from some of the highest housing costs in the world is because of choice.

“The reason that Australia has some of the highest housing prices in the world isn’t interest rates, which have been at roughly similar levels across most advanced economies,” he told the Anika Foundation in a speech on Sept. 7.

“Rather, it is the outcome of the choices we have made as a society: choices about where we live; how we design our cities, and zone and regulate urban land; how we invest in and design transport systems; and how we tax land and housing investment.”

Mr. Lowe said in each area, the choices made by people and politicians have led to high urban land and housing costs.

“It is by tackling these issues that we can address the high cost of housing in Australia, which I view as a serious economic and social problem.”