I've often wondered about the price of Sydney property relative to the average income of ~$60k, so decided to do some digging around.

According to this article, the median house price in Sydney is $569,000

I'm going to quote some income figures from the ABS found here.

The average weekly earnings per person nationally was: $1,197.50, multiplied by 52 gives: $62,270

If we assume a two income household, we get $124,540.

If we divide the median house price by this, we get roughly 4.6. So the median price is 4.6 times the gross earnings of a two income household, which seems unsustainable. I think the general rule of thumb is 3 times income.

Further down we see the average weekly earnings for NSW is: $1,210.10, or $62,925.20, not really different from the national average.

Now, an interesting snippet comes from here

In Sydney [2005-06] the mean income per week ($1,559) was 43% higher than in the rest of NSW ($1,092). This compares with 40% higher income in Sydney than the rest of NSW in 2003-04.

Does anyone know where they got the Sydney mean incomes? The rest of this hinges on that.

Lets assume, based on the quote above, that the Sydney mean income is 40% greater than the NSW average.

We get $1,210.10 * 1.4 = $1,694.14, or $88,095.28 p.a. which seems about right to me, based on a professional salary for someone with 5 or so years experience.

Again, assuming a 2 income household, we get $176,190.56 pa. If we divide the median price by that, we get a price to income ratio of 3.2, which seems much more sustainable.

I think this goes a long way to explain why prices in Sydney are so high. Once I considered the two quartiles above the mean (i.e. the 50% of Sydney earners earning greater than the average), the seemingly unsustainably high prices of desirable Sydney areas become a little clearer.

Obviously there are a lot of assumptions here, in particular the 40% Sydney premium to earnings. I would love to find actual numbers, but for a back of the napkin calculation I think it'll do.

Why are prices in Sydney so high? Because people have more money, i've finally figured it out

Thoughts? Am I missing something?

My $0.028