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Posted on November 21st, 2023

Growing Gap Between House and Unit Prices in Australia

If you’ve been following the Australian property market, you can’t help but notice the growing gap between house and unit prices. This trend is not new, as we have seen the growth of house prices outpacing units since late 2021.

But why have houses experienced more growth compared to units?

One significant factor contributing to this trend is the changing preferences of buyers. Since the pandemic, more people are looking for properties with larger living spaces and outdoor areas. With the rise of remote work, homeowners now value having things like dedicated workspaces as essential features to have in their homes.

Another factor is the supply and demand dynamics in the market.

Pandemic lockdowns, the closure of borders, and the decline in overseas students and workers had a detrimental impact on the inner-city unit market. This situation led to a significant increase in the supply of units, which meant that unit prices were more susceptible to falling demand.

Even though the economy and real estate market is now in full recovery mode, it is still anticipated that the gap between house and unit prices will continue to widen.

Understanding Housing and Unit Prices Gap

To gain a comprehensive understanding of the factors leading to the widening gap between house and unit prices, we need to examine several elements. These include location, demand, supply, and market conditions.

Location

The most significant difference in housing and unit prices exists between capital cities and regional areas. Capital cities tend to have higher house prices compared to units due to their limited land availability and high demand. The scarcity of land in capital cities drives up the prices of houses, making them more expensive than units.

Demand

Buyer preferences shifted as a result of the pandemic and this trend toward larger living spaces and outdoor areas has continued to drive the current demand for houses. We have seen a surge in demand for houses with backyards, larger floor plans and outdoor entertaining areas, as more and more people are working from home.

Supply

The oversupply of units in inner-city areas has been a contributing factor to the widening gap between house and unit prices. Developers, anticipating continued demand from overseas students and workers, overbuilt in these areas. As a result, unit prices have not grown as rapidly as house prices, leading to a widening gap.

Market Conditions

Unit values are historically less susceptible to market conditions due to their relatively low cost compared to houses. However, the current market conditions have heavily impacted unit prices due to oversupply and reduced demand from overseas buyers.

However, according to recent CoreLogic data, there is a potential shortage of median-high density housing stock on the horizon.

This is due in large part to below average unit approvals and completions which have been ongoing since 2018. If this trend continues and demand for units picks back up, we may see an increase in unit prices as the supply becomes limited.

House & Unit Prices Trends in Major Cities

scenic-view.

According to the most recent PropTrack data, here are the current house and unit price trends across major Australian cities:

Sydney

The gap between house and unit prices in the Greater Sydney area is the largest at 74.5%. At the beginning of 2020, the gap was only 29.1%. While Sydney’s inner-city unit market suffered during Covid, increased demand for houses, particularly in affluent suburbs drive house prices higher.

Melbourne

Similar to Sydney, demand for houses in desirable areas has driven prices up while lower demand for units has resulted in a five-year median price growth of 2.18%. The good news is that this trend is expected to reverse as overseas demand for units picks back up.

Brisbane

Demand for units in Brisbane picked up in 2021/22, and this pushed unit price growth than Sydney and Melbourne. The five-year growth for units in Brisbane is at 23.38%. While this is less than half of what houses experienced in the same period (51.88%), it is a promising sign for the Brisbane unit market.

Adelaide

Adelaide’s unit market also performed well with a five-year growth rate of 28.962%. This trend could be attributed to the increasing popularity of apartment living in Adelaide’s city center as well as the lower median house prices compared to other major cities.

Perth

Growth in the price of units in Perth has also outpaced that of Melbourne and Sydney. At 9.94%, it is more than four times higher than what Melbourne achieved in the same period. Median unit prices in Perth are also more affordable compared to other major cities, making the city an attractive option for investors looking for more affordable options.

Hobart

Hobart has experienced the highest median unit price growth rate among all capital cities at 49.24%. This is not surprising given that Hobart had the lowest median unit prices of all capital cities in 2017. The demand for units in Hobart has risen significantly, and this trend is expected to continue as more people look to relocate or invest in the city.

Will this gap widen?

At present, the pipeline of unit developments in major cities is still quite high. Rising interest rates and low consumer confidence could lead to a decrease in demand, and this could potentially widen the gap between house and unit price growth. However, it is expected that the return of overseas buyers and a growing population will continue to drive demand for units, particularly in cities like Sydney and Melbourne. The development of new infrastructure and amenities in these cities could also contribute to the growth of the unit market. And if we see the cash rate easing in 2024 as predicted, it could further boost the demand for units and close the gap between house and unit prices.

Summary

Once the current pipeline of unit developments is completed, we could see a decrease in supply, which could help drive up unit prices. Factors such as population growth, infrastructure development, and interest rates will play a crucial role in determining the demand for units and ultimately impact their prices.

Investors should carefully consider all factors when deciding to invest in units or houses and keep a close eye on market trends for each city. With proper research and understanding of the current landscape, investors can make informed decisions and potentially reap the benefits of growth in both unit and house prices.

At Ironfish, we believe in the importance of staying updated on market conditions. We offer resources and educational events to help investors make informed investment decisions to achieve long-term success in the property market. Whether you’re interested in investing in houses or units, our team of experienced professionals can provide tailored advice to help you achieve your investment objectives.

We’ve endured a property market roller coaster ride over the past 12 months, and a tidal wave of change over the past 3 years.

Australia’s real estate market rebound is well underway. The real estate crash, bubble and bust did not happen. Instead, we’re on the precipice of the Wealth effect.
So, stop paying attention to the clickbait doom and gloomsters and start paying attention to what we actually know about the Australian property market. It is dynamic, it is resilient, and it is growing.

The big question…will you jump on the perfect storm of opportunity or wait and watch on the sidelines?
We’ve compiled the 7 trends defining 2024 so that you don’t get sidelined.

Who will benefit the most in 2024? Tune In as Grant Ryan ends the year with his annual must-know trends:
1. What’s in store for the property market in 2024
2. How housing demand is creating the ‘wealth effect’ over the next decade
3. Big cities are making a comeback and fast-tracking housing supply
4. The decade long rental boom… no signs of slowing down
5. Interest rates cuts and cost of living pressures ease…but when?
6. The capital city scorecard – where to invest and why

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