Artist Mark Hanham's studio/home on Bourke St, Surry Hills, one of Sydney's 'greatest thoroughfares', was sold at a packed auction.

The converted warehouse was originally built in 1917 to house sugar cane furniture and later became the AF Millier Taxi Meter Repair Shop.

John McGrath, chief executive of McGrath Estate Agents, who acted as auctioneer, told bidders that the four-bedroom home was "a stunning canvas on which to paint your dreams".

Bidding started at $3.2 million and slowly climbed in $25,000 increments before dropping to $10,000 at the end.

The house, which was converted from a warehouse some 10 years ago, was announced as "on the market" for $3.31 million, with Mr McGrath commenting that the value of the house had risen faster than the bidding.

Final bids ranged from $5,000 to $2,500, with the last bid before the hammer fell being just $1,000.

Mr McGrath said he was looking forward to such an auction because of the property's location and history.

It is a fabulous home and most of the buyers said they would take it to the next level, he said.

Spending $1 million to $2 million on renovations could easily boost the property's price to the $5 million to $6 million level, he said.

Warehouses are really sought after, and this is one of the best locations in the inner city, he said.

McGrath Surry Hills agent Mark Foy said both registered bidders plan to completely renovate the building while preserving its original appearance.

He said the buyer owns another flat in Surry Hills and plans to make it his final home.

He said, "The owners are happy with it, and our guide price is $3.3 million." That's a good price for the area.

Mr Hanham has lived here for the past eight years, occasionally renting out the ground floor.

He bought the house in 2015 for $2.05 million and decided to downsize.

Hanham is best known for his work depicting beloved locations such as Sydney Harbour. His work has appeared on building hoardings in inner-city Sydney, including the current four-year commission for Lot 1 at Circular Quay.

Collectors of Hannum's work include Lionel Richie, Russell Crowe, Scott Farquhar and Lisa McGuigan of Lisa McGuigan Wines.

Mr McGrath said the number of property listings in the Sydney market was increasing.

It's too early to say whether this will continue through to Christmas, he said.

However, it looks positive and listings have been at an all-time low for the past two years, he said.

Values for quality homes, including waterfront homes, remain strong, he said.

As interest rates rise, the lower end of the market will take a hit, he said.