With average house prices in Sydney topping $1.1 million, there is a push on to find ways to prevent costs from ballooning even further.

The average Sydney house is $300,000 more than the next city says the Sydney Morning Herald. The headlines have encouraged the new Premier of NSW, Gladys Berejiklian, to say that housing affordability and housing supply are her main priorities. The Domain report indicated that Sydney’s median house price had climbed by 10% in the last year. Melbourne matches Sydney’s growth with a 10% rise over the year but Brisbane house prices only increased by 4.5%.

But is not the annual increase that separates Australian cities but the average or median house price. Behind Sydney’s median house price of $1,123,991 comes Melbourne at $795,447, Canberra at $684,395, Darwin at 591,167, Perth at $573,766 and Brisbane at $540,758.  So the median house price in Sydney is $328,544 higher than any other Australian capital city.

Apartments are not at the same excessive heights as house prices with the Sydney median apartment price at $711,256. The clear implication is that the average apartment is well below the cost of the average house in Sydney. This is partly fuelling the boom in Sydney apartments when a new home can be $400,000 cheaper as an apartment as opposed to a house.

Just as Sydney leads the nation in average house prices so too does it lead with apartment prices.  Behind the Sydney average apartment price of $711,256 comes Melbourne at $459,182 and Canberra at $413,697. Again Sydney is well above the average price of apartments in other Australian cities.

With house and apartment average prices being so high in Sydney there are growing concerns about affordability. The new NSW Premier says supply is the answer. Sydney needs 726,000 new homes over the next 20 years or on the high projection 820,000. Previous years have shown that Sydney is becoming more popular so the higher figure is very likely to become reality. If this is so we will need 41,000 new homes (houses and apartments) a year. The highest Sydney has got to recently is 31,000, well below the target. Yet back in 1971 36,000 new homes were built when the city was around half its current size of 5 million people.

Much of the problem in Sydney to achieve the housing targets comes from the complex planning system. Sydney and all Australian cities need planning systems that support the growth of housing and particularly the growth of the more affordable apartments. Even the Australian Prime Minister, Malcolm Turnbull, has stated that the Sydney planning system takes three times longer than it takes in Brisbane.

So for Premier Berejiklian to achieve her objective of helping housing affordability by lifting supply the number of planning approvals must grow. Unfortunately the opposite seems to be happening. The December 2016 housing approval data issued by the Australian Bureau of Statistics (ABS) indicates that housing approvals have dropped by 24% in NSW since July 2016. This was driven by an even bigger drop in apartment approvals which shrunk by 35%.

The Premier has appointed a new Minister for Planning who is also given the title of Minister for Housing. The new Minister is Andrew Roberts and he will need to rethink the planning system to reverse the slide in approvals. Complicating the planning system is a confusion over council amalgamations which the new Premier seems to be backing away from. With councils in some disarray housing approvals will need tom be driven by the state’s Greater Sydney Commission which has significant powers across Metropolitan Sydney. The real question will be the degree they use their powers. If they don’t then Sydney house prices will continue to escalate and the only option for many people will be a somewhat cheaper apartment.

See below graph based on ABS figures: