The third most expensive city in Australia after Sydney and Melbourne isn’t where you might expect – it’s Wollongong, population 200,000.

House prices in the Gong jumped by $100,000 in the year to December 2016, with a median house price of $700,000, Domain Group’s Regional House Price Report shows.

Melbourne’s median house price is $795,447 and Sydney’s $1,123,991.

Experts say much of Wollongong’s growth is a result of the high cost of property in Sydney, with both investors and home hunters turning south in search of a bargain.

House prices in Wollongong were up 16.7 per cent over the year and a staggering 7.7 per cent over the December quarter. Sydney prices grew 10.7 per cent over the year and 4.7 per cent over the quarter.

It is now clearly one of the state’s most popular coastal destinations, Domain Group chief economist Andrew Wilson said.

“It’s now being considered a part of Greater Sydney,” Dr Wilson said.

“It’s the strongest result of all the major regional markets … likely because of its proximity to Sydney and relative affordability.”

Located 70 kilometres from Sydney, apartments in the area have also experienced a price jump – up 4.1 per cent to $501,000.

5/22 Market Street, Wollongong is on the market for $840,000 to $870,000. Photo: MMJ Real Estate Wollongong

Victor Shalala, from MMJ Real Estate Wollongong said “The entry level for a house in the 2500 postcode [which covers the inner suburbs of Wollongong] is $650,000 to $750,000 for something decent.”

He has just put a three-bedroom apartment at 5/22 Market Street, Wollongong on the market for $840,000 to $870,000.

He said the interest in the unit was a 50-50 split between investors and home buyers and “investors are driving up the prices”, he said.

Jason Hines from Peter Fitzgerald Real Estate said the majority of his buyers were younger families, many of whom were escaping high Sydney prices.

“Seventy per cent of our buyer market we are dealing with would be Sydney buyers,” Mr Hines said.

“Mostly from western Sydney selling for great prices and making a sea change at a still very affordable price,” he said.

He said Wollongong offered a “similar travel time” for those commuting from Sydney’s western suburbs, but with a beach.

8 Cabbage Tree Lane, Fairy Meadow recently sold for $829,000. Photo: Peter Fitzgerald Real Estate

A successful sale he made last year was 8 Cabbage Tree Lane in Fairy Meadow – a suburb in the northern part of Wollongong. The four-bedroom, two-bathroom home sold for $829,000 in December.

Propertybuyer buyer’s agent Rich Harvey has had his eye on the surging area for the past few months, for both its proximity to Sydney and its natural environment – both drawcards for home buyers.

“It has a highly attractive price and has benefited from the ripple effect from Sydney,” Mr Harvey said.

Another big drawcard for investors is the ability to add a granny flat to an existing dwelling and achieve two rental incomes from one property, Mr Harvey said.

This strategy has proven popular with western Sydney investors looking to increase their cash flow, but with price rises looking to the larger blocks in Wollongong has become more viable for this strategy.

Although Wollongong is one of Australia’s most expensive cities, some towns are pricier. With a population under 100,000, the coastal town of Byron Bay has a median price of $860,000.

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Former Sydneysiders Toni-lee and Mark Baker at their Wollongong home. Photo: Supplied

What the locals are saying about ‘the Gong’

Wollongong residents are surprised by the growth, but knew it was only a matter of time before the northern neighbours took a look over the fence.

Most agreed the best thing about Wollongong is its proximity to Sydney – not too close, not too far – and the beaches and coffee aren’t bad, either.

TAFE administration officer, Lina Morosini, 49, grew up in Warilla. She left the Gong at 16, to work in Sydney. She said it was nowhere near as tough growing up in Wollongong as it was when she was young.

“There was racism against Europeans who moved here for the steelworks but racism is in the past. People are welcoming. Steel isn’t playing as big a role. The economy is changing,” she said.

“People are asking big prices, now. Mum’s unit in Lake Illawarra was valued at $200,000 in 2014. Two units in the same block just sold for $380,000 – I was stunned.”

And Alison Covington who commutes from Wollongong to the Mascot office of her charity organisation, Good360 Australia, was born and bred in Wollongong.

“I don’t think the prices are that ridiculous … it might be a little high compared to the national average but … you can drive to the northern suburbs of the Gong to Sydney as quick as you can to Western Sydney and technology means you can work anywhere.”

Wollongong Public School learning support officer Toni-lee Baker moved from Sydney’s west to Wollongong four years ago. She described the lifestyle change as “heavenly”.

“Wollongong has an amazing, welcoming feeling. Newcomers are embraced and valued,” she said.

It was also a good financial decision. The home she and her husband, Mark, bought in Windang in 2012 for $400,000 was recently valued at more than $600,000.

“Our western Sydney suburb was becoming too violent. I wanted a better life for my kids. Now I live between the beach and Lake Illawarra. I couldn’t afford that in Sydney.”