University of Canberra's National Centre for Social and Economic Modelling ... - The Daily Telegraph

THE latest research on the cost of living in Australian cities revealed what Sydneysiders intuitively already know: Sydney is the most expensive city in the country. The average Sydney householder is paying about a $2500 a year premium for the privilege of living in the Harbour City.

In a sense, you get what you pay for. If you're lucky enough to enjoy Sydney's magnificent Harbour views then a premium should be expected.

But if, like the majority of Sydneysiders, you don't then you may be upset by this read. Sydney's high income households pay about $4000 more for the same goods and services compared to Melbourne and $7500 more compared to Adelaide. But it's not just the high end of town that pays more. Low income households pay about $1500 more than Melbourne and $3000 more than Adelaide.

It was recently revealed the Sydney Swans provide a cost of living allowance of nearly 10 per cent to their players. If such allowances are good enough for footy stars, then one does wonder how pensioners, the unemployed and single mums get by on nationally determined government benefits.

So what is it about Sydney that makes this city so expensive? The main driver is housing. The NATSEM research shows that rent and mortgage costs about 20 per cent higher, or $1500 a year higher, than other capital cities. Electricity costs are also about 17 per cent, or $220 per year, more expensive than other capitals.

But the news is not all bad for Sydney. Research found lower interest rates have meant significantly lower mortgage costs. In Sydney, the average household spends about $665 less per year on the mortgage. And with the effects of Queensland floods and Cyclone Yasi wearing off, food prices are also cheaper and households pay about $173 a year less than two years ago. While Sydney may have a high cost of living compared to other cities, the reality is that prices are not out of control.

In fact, over the past two years Sydney prices have increased in line with the national average at a very benign 1.5 per cent a year. This compares with average weekly earnings increasing by about 4 per cent per year in Sydney. In real terms, Sydney households, are on average, ahead by about $4000 per annum.

But these figures are averages that can distort the real picture for many families. There are always families who struggle. Those families on government payments or lower income families who struggle in the tight Sydney rental market are all likely to be feeling the pinch.

Sydney's high rents, and electricity prices that have risen by 37 per cent over the past two years, will be the key factors for families struggling to get by in Australia's costliest city.

Ben Phillips is the principal research fellow at the University of Canberra's National Centre for Social and Economic Modelling (NATSEM)