Spatial connectivity and house price diffusion: The case of Greater Sydney and the regional cities and centres of new south wales (NSW) in Australia

Abstract

Studies on house price linkage in a market delineated by coastal cities are still exploratory. By considering the oceanfront feature in delineating housing market, we case-studied Greater Sydney and a group of coastal cities in the state of NSW in Australia to examine the diffusion pattern between these cities and provide some spatial and theoretical explanations for these patterns, if any. We found strong house price linkage between Greater Sydney and each of the cities in the Illawarra region, while there is no comparable evidence for the cities in the Hunter region. The results suggest that strong spatial connectivity between coastal cities defined by travelling time, distance, and net migration, contributes to the convergence of housing markets. Housing prices flow exclusively from Greater Sydney to the coastal cities and centres of Kiama, Shellharbour, and Wollongong without any reciprocal effect. These findings vividly show the migration hypothesis prevails as priced-out households in Greater Sydney move to the Illawarra region due to house price and growth differentials. Finally, the responsiveness of Greater Sydney to variations in market fundamentals further confirms the migration diffusion pattern between the cities in the Illawarra region and Greater Sydney. These findings have significant implications for policymakers seeking to address imbalances between centres and growth areas.