The Surprising Consequences of High Property Prices
A home is a certain thing — two-storey, a terrace, an apartment, a flat , a caravan, an igloo — but the price of home is uncertain. The Reserve Bank, The Treasury, the big banks, countless analysts, and every Saturday morning home-seeker, expend tremendous energy trying to comprehend even the most minute gradation in housing prices.
The reason is, because homes have a central role in our economy, the tiniest slippage in price has cascading consequences. At one extreme, a precipitous or sustained fall can trigger a global financial crisis. At the other end, sustained rises in property prices boosts employment, superannuation balances, consumer confidence and Bunning’s Saturday sausage-sales.
These are well understood phenomena: housing prices’ impact on peoples’ economic experiences. Less well understood — certainly in Australia — is the equally important impact housing prices have on people’s social experiences.
In short: they’re vast.
The school your children attend; who they meet; even their teachers : all are inextricably linked to the median house price of your neighbourhood. Wondering why real estate agents trade on school catchment zones? For each standard deviation in pupil performance a local school is above the state average, nearby houses attract a house price premium of around 3%. The problem is: as property prices rise, schools segregate.
The dividing line is the income of the children’s parents. High incomes families remain (relatively) unaffected by high home prices; they can stay in the school catchment zone they choose. Low income families have a different experience. If high property prices lead to high mortgage payments, or higher rents; and if these payments take too high a proportion of their weekly income, school catchment zones be damned: people move.
This is a serious problem. More diversity leads to better learning outcomes. Social mobility is higher for every student.
Last year, this meme, which shows there is no Red Rooster restaurant east of Sydney Airport, spread like wild-fire on Twitter and Facebook:
The ‘Red Rooster’ line attracted its fair share of snivelling. It is provocative because it reveals the food ecologies that prevail in different corners of the city. Sadly, the less Facebook-friendly corollary is the ‘Thomas Dux’ line: the absence of ‘upmarket’ fresh food chains southwest of Baulkham Hills. All of Sydney’s high profile groceries are concentrated in the City’s east:
This is a map I made that shows the locations of three upmarket retailers — Salt Meats Cheese, Thomas Dux and Harris Farms Markets. It reveals that the ‘Whole-Foods’ effect, the link between property prices and food ecologies, is strong in Sydney.
Zillow, America’s biggest online real-estate directory, theorised that food is an urban amenity, every bit as important as a local park. Using the incredile amount of longitudinal data the company has for every neighbourhood in America, the company found that homes grow more rapidly-in-value if they are closer to two upmarket food retailers: Trader Joe’s or Whole Foods:
“Between 1997 and 2014, homes near the two grocery chains were consistently worth more than the median U.S. home. By the end of 2014, homes within a mile of either store were worth more than twice as much as the median home in the rest of the country.
The Zillow Chief Economist said:
“Like a self-fulfilling prophecy, the stores may actually drive home prices. Even if they open in neighborhoods where home prices have lagged those the wider city, they start to outperform the city overall once the stores arrive.
Harris Farm Markets, Salt Meat Cheese and Thomas Dux are (probably) not responsible for Sydney’s high property prices. Yet their innocent choice of locale, as well as Red Rooster’s, demonstrates how two people cohabiting in the same city, in houses with different market value, have vastly different social experiences. Easterners are unlikey to haphazardly encounter Red Rooster’s delights. Westerners will have to travel far to sample Thomas Dux’s wares.
Although this is not a new conclusion, it’s implications are more severe than usual. Segregated cities are unhappier Cities. They have less levels of social solidarity, higher levels of social mistrust, and more concentrated levels of social isolation and disadvantage.
Sydney is not yet facing the severe effects of permanently high property prices, like in San Francisco, London or New York; but Sydney’s egalitarian ideal is under pressure. Unlike New York, in our city housing prices is not the standard measure of success. Unlike Hong Kong, we prize the ideal of a home for everyone. And unlike Singapore, we prefer people — not government — own their own home.
If we pretend we don’t have a problem with home affordability, or if we pretend that the problem with home affordabilty will miraculously be solved by simply building more apartments, we’re risking more than excluding a few people from the property market.
We’re risking an ideal: Sydney, the world’s most liveable city, affordable for all.