The Determinants of Housing Affordability in Greater Sydney: Evidence from a Submarket Analysis

Little studies have been done on the determinants of housing affordability at a disaggregated level despite the existence of socio-economic and demographic disparities across metropolitan cities such as Greater Sydney. This study therefore gauges the determinants of housing affordability in different regions of Greater Sydney using data at Local Government Area (LGA) over 1991-2016 with a System Generalised Method of Moments (GMM). The study has identified the differential geography of housing affordability determinants among regions (i.e. low and high income regions). Although house price and average income are key drivers of housing affordability across all regions, the differences in the magnitudes of these determinants between regions have also been documented. Specifically, low income regions (i.e. western, inner-west and southern regions) are more sensitive to income and house price change than high income regions (i.e. eastern and northern regions). In addition, low income regions are more sensitive to other determinants compared with high income regions. The empirical results show that housing supply is a significant driver of affordability in the relatively low income regions such as western, inner-west and southern regions of the city but insignificant in the high income eastern and northern regions. Similarly, resident population and median rent are also statistically significant drivers of affordability in the relatively low income regions but insignificant in high income regions. The implications of the study have also been discussed.