Costly rise in rankings of global cities

It's no surprise to Gerardo Robledillo that Sydney and Melbourne are the third and equal fourth most expensive cities in the world.

The computer scientist is Spanish, lives in Prague, and has never been to Australia. But his website, expatistan.com, compiles cost of living rankings for cities crowdsourced from expatriates all over. And ''almost every single person writing from Australia complains about the cost of living there'', he says.

One correspondent from Point Lonsdale was incredulous that a hotel room in South Yarra was 20 to 30 per cent more expensive than one in Stockholm. ''Sydney possibly is the most expensive place that I've been to outside of St Tropez'' wrote another, lamenting the $800 to $900 weekly rental on a two-bedroom apartment.

In the Economist Intelligence Unit's Worldwide Cost of Living survey published this week, Sydney rose from seventh to third and Melbourne from eighth to equal fourth in the most expensive cities ranking. The unit surveyed more than 50,000 individual prices across 160 products and services including food, clothing, household supplies, rents, transport, utility bills, education and recreational costs. Prices were converted into US dollars and weighted for comparison purposes.

''Ten years ago there were no Australian cities in the top 50 and I have not seen this sort of climb with any other cities,'' says the index's editor, Jon Copestake, quoted in The Guardian.

''But economic growth has supported inflation, and the strength of the Australian dollar against other currencies besides the US dollar has driven up costs. Visitors will certainly feel the difference and people living there will have noticed prices have crept up.''

You bet. Market researcher Elodie Myers, 30, moved to Sydney with her Australian investment banker husband from Singapore three months ago, intending to settle after three years in Singapore and five years in London. ''Initially when we looked at salary we thought the salary bands are looking good,'' Myers says.

But rent, transport, insurance and eating-out costs have all been a shock.

They have rented a one-bedroom apartment in Artarmon and plans to buy are on hold. Similar rent would have got them two bedrooms with a tennis club and pool in Singapore. Their disposable income is ''a lot lower'' here despite the better salaries, so they are not sure they'll stay.

''We still very much enjoy the fact that it is nice weather and all that kind of thing, but having lived in different capitals I would say Sydney is not as good looking as it seems on paper,'' Myers says.

Some job candidates from overseas find the cost of living in Australia ''a real surprise'' says Rick Khinda, a spokesman for global recruitment firm Adecco. Still, recruiting is not a problem because most of the candidates come from places of high unemployment such as Ireland, South Africa, Britain and parts of Europe. Higher salaries compensate for higher costs, he says.

The Economist Intelligence Unit survey story drew a cavalcade of comments on smh.com.au carping on price pain in the world's newly anointed third-most expensive city.

''The cost of living in Sydney is ridiculous! I'm a fairly high paid young professional but struggle to save any money from my salary, high tax, high rent, high food & drink price, high electricity/Internet/telecommunication/petrol price!'' wrote ''Black Swan''.

''Australia, what a rip-off. No wonder tourists don't come here any more. No one to blame but ourselves,'' wrote ''J Walker''.

Discontent with high prices is the lingua franca of shoppers everywhere and surveys like the Economist's will pump up the gripe volume in Sydney and Melbourne. But resident Australians have had less cause for complaint than most.

Our supposed high level of economic literacy seems to slip through holes in our hip pockets. Some individuals and groups do it tough, but the rest of us forget what economists know: wages have risen faster than prices for 10 years. We've scarcely had it so good.

The Economist Intelligence Unit survey is concerning for expats, migrants, visitors and international students, but ''for ordinary Australians it has little or no relevance'' says Craig James, the CommSec chief economist. ''Those sorts of comparisons are really only of value for people coming to Australia to work for short periods of time.''

The major, indeed the only reason Sydney and Melbourne are moving up in the expensive world city rankings is the strong value of the Australian dollar which has drastically diminished foreigners' buying power here, James points out. Ten years ago, one US dollar bought $1.60 Australian dollars. Now it buys just 96¢.

''The problem with all those sorts of measures is they are in US dollar terms, so if you are American or Brit or from the eurozone of course it's going to cost you a fortune, just the opposite of when the Aussie dollar was US50¢ 10 years ago,'' says Stephen Koukoulas, the managing director of Market Economics and formerly senior economic adviser to the Gillard Labor government.

But Australians travelling and working overseas in unprecedented numbers are finding their dollars stretch further than ever.

Here's the reality check: for the past 10 years, average weekly earnings in Australia have risen 3.7 per cent a year, a ''remarkable situation''. The Consumer Price Index has risen 2.4 per cent a year on average.

''Wages growth has exceeded the rate of inflation, year in, year out for 10 years, and that includes the dreaded electricity price surge and banana prices,'' Koukoulas says.

That means ''for 10 straight years your purchasing power has improved'', he says. Thanks to the margin between wage growth and price rises (average 1.3 per cent a year) ''purchasing power has increased by more than 15 per cent'' over the decade, including compounding factors, he says.

''We have to remember we are a very very rich population now,'' he says. Only Qatar, Luxembourg, Norway and Switzerland have higher GDP per capita in $US terms, according to the IMF World Economic Outlook. ''We are about 40 per cent richer than the average American. That's not 4 [per cent], it's 40 [per cent]'', says Koukoulas, for emphasis.

That's not to deny some people can't afford the things they need. Our growing good fortune is not evenly spread. Pensioners on fixed incomes, people without jobs, retirees with finite savings hit by the global financial crisis are among those who feel the pain of price rises acutely. The lower the income, the greater the share taken up by essentials - food, shelter, utilities.

For the 600,000-plus Australian children growing up in families where neither parent has a job, education becomes a luxury, says Lisa O'Brien of The Smith Family, which is running a back-to-school drive seeking sponsors to support the education costs of disadvantaged children.

''Naturally [the parents'] highest priority is a roof overhead and food on the table'', so they ''really have difficulty prioritising education expenses'', O'Brien says.

The fact that they choose not to participate in expensive electives, sports or extra-curricular activities, and can't afford the right books, the correct uniform and excursions like everybody else, ''affects the engagement with their education and their long-term life opportunities''.

Some price items in family budgets have been rising much faster than inflation.

''There are areas of unaffordability and acute consumer detriment but it is by no means across the board,'' says Matt Levey, the head of campaigns for the consumer organisation Choice.

Respondents to a recent Choice survey confirmed electricity price rises, which the Prime Minister, Julia Gillard, put at nearly 50 per cent over the past four years, as their principal cost of living concern.

In the year to December secondary education costs rose 7.7 per cent, tertiary education rose 4.7 per cent, medical and hospital services were up 9.4 per cent and insurance rose 8.5 per cent, according to the Bureau of Statistics.

Vegetable prices rose 9.4 per cent but fruit dropped 19 per cent, and food overall was down 0.1 of a per cent. Audio, visual and and computing equipment dropped 14.2 per cent while clothing and footwear rose less than 1 per cent in price.

''When you look at all the items on our budget and rate them according to importance, it's clear that overall prices aren't accelerating greatly, and prices are quite modest,'' CommSec's James says.

''The supermarket wars have yielded some pretty impressive price falls in key items but when you talk about the cost of living people tend to forget that.''

The last interest rate rise was in November 2010, housing affordability looks to be the best in a decade, and we haven't had a recession in 21 years, James says.

Politics is partly to blame for the disconnect between common consumer perception and reality, Koukoulas agrees. ''Politicians on both sides are saying 'I feel your pain, I feel your financial difficulty', when facts at the macro level don't support that.''

In an election year the price pain refrain will likely amplify as politicians preen themselves in front of ''working families''. But Koukoulas urges those who need to, say, postpone an overseas trip in order to meet private school fees, to pause and reflect.

''You've built up your expectations of what's normal versus what's luxurious. Maybe you are not doing it tough. Maybe it's just your expectations are a bit over-inflated,'' he says.

The story Costly rise in rankings of global cities first appeared on The Sydney Morning Herald.

Smartphone
Tablet - Narrow
Tablet - Wide
Desktop