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Sydney houses are 'too dear'

SYDNEY property is too expensive and young home buyers would be better served by going somewhere more affordable, says the Reserve Bank governor, Ian Macfarlane.

He forecasts a long period of stagnant property prices.

The city's rocketing prices during the property boom had slashed population growth in New South Wales and sapped the state economy, the central bank chief told a parliamentary conference.

He added: "In dollar terms, Sydney is still way way more expensive than anywhere else in Australia, and I think it's so expensive that, particularly for a lot of young people, it's in their interests to go elsewhere, where the lifestyle is more affordable."

Mr Macfarlane said it was too expensive to live in New South Wales and presented evidence showing that house prices in Sydney were almost double the average for the rest of Australia at the peak of the property boom in 2002.

"Even though the gap had narrowed recently, Sydney prices were still two-thirds higher than the average house price for other capitals.

He added: "Sydney house prices are somewhere between 50 and 60 per cent more expensive than Melbourne house prices."

The Reserve Bank published figures showing average Sydney house prices were almost 10 times average annual earnings in the state, compared with seven times in Melbourne and a little over six times in Brisbane and Canberra.

Mr Macfarlane, giving his six monthly testimony in Federal Parliament's economics committee, said the scale of the property boom meant the correction still had some way to go. He predicted a long period of stagnant prices.

Mr Macfarlane said interest rates would remain on hold for the time being but he warned investors against assuming the bank would not lift rates at all.

"We think there's a 50 per cent chance that we might have to go up again, and a 50 per cent chance that we have to go down," he said.

"If we got some figures that suggested that [inflation] was going up more that we are now saying, then we might have to go back and tighten monetary policy."