What I'm wondering is, do cities naturally become more unaffordable as they grow in size and the mix of employment changes?
Transition from a manufacturing (factory) based economy to service jobs-based economy usually means greater income inequality. Simply because some people have more knowledge than others from education, etc while in a manufacturing environment you just want bodies to replenish your workforce.
The greater the income inequality, the more polarised the housing market becomes. i.e. there are more (numerically) highly-paid people who can afford expensive places, and they then use that money and equity to buy investment properties as well. Knowledge based job (office work) salaries tend to increase faster than labour-based jobs.
In short, economic growth and a country's transition from manufacturing to services (i.e. mature economies including Australia) naturally increases income inequality. You see this in New York, Tokyo, London, etc. You simply can't afford to buy or even rent a place on average wages. Yet New York and London (Tokyo is a special case) keep going up. You can keep opening new areas for development, but the city loses its soul and just becomes one sprawling thing (as anyone who has flown above Los Angeles can see).
If that is the case, then increased unaffordability isn't something that can be solved if you want the economy to keep growing. You would have to downgrade lifestyles. 20 years ago Australia was more affordable. We also didn't have world-class restaurants, big banking industries, as many 5-star hotels or cafes on every corner. Now, life is a lot less affordable for ordinary people, but if you're on a high income Sydney is a lot more fun than it was 20 years ago.
I just remember when my family went to Oz 20-odd years ago, even Sydney was known as a bit of a backwater. Shops closed early, and there were few good restaurants. Now we're talking Michelin stars everywhere.
Maybe lack of housing affordability is a natural state of mature economies. Australia might develop into a more US-type model where many people just chronically rent. Incidentally, this gives rise to big residential property trusts (which are absent in Oz).
Alex