House prices outpace units

Narrowing gap in some regions

House prices outpace units


By Mina Martin

Houses have typically been priced higher and shown stronger value growth compared to units, a trend that has been consistent over the past four years, PropTrack reported.

PropTrack data revealed that the difference between median capital city house and unit values was just $85,000 at the onset of the pandemic in March 2020.

However, by June 2024, this house price premium surged to historic high levels of 47%, equating to more than $300,000.

“The house premium rose sharply through the pandemic price boom as people sought out more space,” said Eleanor Creagh (pictured above), PropTrack senior economist.

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Pandemic and interest rates impact

The COVID-19 pandemic and record low interest rates allowed many to take on more debt, driving house values up by 47.7% compared to pre-pandemic levels, while unit values only increased by 23.9%.

House values have risen at a faster pace since the start of 2023 when the housing market began to recover the sharp falls seen in 2022,” Creagh said.

This growth is particularly evident in inner city suburbs, such as Sydney, where the median house price in an inner ring suburb is more than double that of a unit.

Affordability constraints and borrowing capacities

As home prices continue to rise and borrowing capacities are reduced substantially by significant interest rate tightening since May 2022, affordability constraints are causing this gap to narrow in some regions.

“With the substantial lift in interest rates, maximum borrowing capacities have been reduced by about 30%,” Creagh said.

This reduction in potential loan amounts and budgets has pushed buyers constrained by borrowing capacities toward more affordable options, such as units.

Regional variations and market dynamics

More affordable regions and property types have generally seen stronger growth in prices.

In Brisbane’s inner city, where median unit values present an almost 60% discount to houses, unit values have risen almost 16% over the past year compared to around 2% in regions where the unit discount is closer to 20%.

This trend is not evident in Victoria, where broad price momentum is weaker in Melbourne, the worst-performing capital city market in terms of growth since the pandemic.

Buyer demand and market trends

Units typically pose a more affordable entry point for first-time homebuyers and investors, reflecting a pickup in activity from these groups.

Apartment sales volumes over the year to May have increased relative to the same period in 2023, and have taken up a larger share of total sales volumes than any year over the past five years in every capital city.

“The share of apartment sales has increased most in Sydney, Perth, and Brisbane – the least affordable capitals,” Creagh said.

Future outlook

With home prices expected to continue rising, affordability challenges will persist.

“Home prices are up 10.14% from their December 2022 low, lifting 3.14% year-to-date to sit 6.55% above June 2023 levels,” Creagh said.

Further home price growth is anticipated, posing continued affordability challenges for buyers, particularly in capital cities where housing supply struggles to meet demand.

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