Recent data from the Australian Bureau of Statistics (ABS) showed that homes in Australia’s capital cities are still rising in value – adding 2% in the June quarter.

Sydney, Melbourne and Canberra all saw quarterly growth of more than 2%, while Darwin and Perth saw home values go backwards.

Over the past 12 months, Sydney home values have risen 3.6%, less than half Melbourne’s growth of 8.2%, while Canberra has seen strong growth of 6% in residential property prices compared to June 2015.

Perth and Darwin home have lost 4.8% and 6.5% respectively – much of that is attributable to the end of the mining boom, which has seen miners and energy players cut their staffing levels as the fall in commodity prices started to impact them and as giant LNG projects move out of the development phase into the production phase.

residential-property-prices-sep-2016

Source: ABS

 

It’s the first quarter of positive growth for Sydney, after two consecutive quarters of negative growth – which seemed to signal the popping of what many thought was a property bubble. However, two interest rate cuts by the RBA has seen the official cash rate sink to 1.5% and lenders have also cut their rates.

As I wrote earlier this week, the big four – Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all slashed their discount mortgage rates under 5%, while several non-bank lenders are even offering rates of less than 4%.

Haves and have nots

According to NSW Planning Minister Rob Stokes, in 1975 it cost 4 times the average salary – but today the same home costs at least 12 times the average salary. That means generations of future Australians are unlikely to be able to afford a house in Sydney – or Melbourne for that matter – if prices continue to rise as they have been.

sydney-property-price-growth-2016

Source: Domain

 

The solution to the problem may mean following the lead of London, which has a much higher allocation of medium and higher density homes as the table below illustrates. It could also mean more subdivisions of those quarter acre blocks in capital city suburbs – replacing single homes with 4 or 5 terraces or medium density developments.

sydney-vs-london-housing-type

Source: Domain, Savilles Research, ABS, UK 2011 census

 

Foolish takeaway

It seems clear that Australia’s property market overall is headed higher – although different capital cities will have very different outcomes. It looks like Sydney and Melbourne will continue to record the strongest growth, while resources states and territories will continue to struggle for some time yet.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.