The current housing market growth phase “has really been all about Sydney and Melbourne,” said Cameron Kusher, head of research at CoreLogic RP Data, in a recent report.

“When you look at dwelling value growth, increases have been substantially higher in Sydney and Melbourne than in all other capital cities,” he said. Demand for mortgages has surged across New South Wales and Victoria, while it has barely increased across the other states and territories.

CoreLogic traced the current growth phase in the Australian property market to June 2012, noting that only Sydney and Melbourne have recorded value rises greater than 21% over this period.

“The rise in values has been supported by low interest rates and availability of mortgage finance,” Kusher said. “However, other factors such as localised economic performance, population growth and foreign demand have driven the much stronger growth in Sydney and Melbourne than across the other capital cities.”

In terms of mortgage finance, New South Wales and Victoria emerged at the top among the states and territories last December. The value of mortgage lending across each state and territory was recorded at:

  • New South Wales - $14.5bn
  • Victoria - $9.6bn
  • Queensland - $5.1bn
  • South Australia - $1.6bn
  • Western Australia - $2.7bn
  • Tasmania - $0.3bn
  • Northern Territory - $0.2bn
  • Australian Capital Territory - $0.7bn

Over the month, NSW (41.8%) and Victoria (27.7%) accounted for a combined 69.5% of the value of all housing finance commitments. In contrast, when the current growth phase commenced in June 2012, 33.6% of housing finance commitments were in NSW and 27.1% were in Victoria.

When it came to the value of mortgage lending to investors in December 2016, the lion’s share was taken up by NSW ($6.8bn) and Victoria ($3.7bn). “More than three quarters (76.3%) of investor mortgage finance nationally in December 2016 was in NSW (49.6%) or Vic (26.7%). While the proportion of lending to investors has previously been higher in each state, combined they make up the largest share on record,” said Kusher

With mortgage demand now so overwhelmingly concentrated in NSW and Victoria, it’s no wonder values in both state capitals have increased so much more than in the other capital cities.

While the government and regulatory bodies have taken steps to cool mortgage demand, particularly from offshore investors vying for property in Sydney and Melbourne, demand remains unquestionably strong. With interest rates at such historic lows, further changes are needed to slow mortgage demand and check the astronomical increases in dwelling values in Sydney and Melbourne.