As 2024 unfolds, a notable shift is occurring in Australia’s property market: while house prices continue to soar, units are becoming increasingly attractive. The once-clear distinction between the cost of houses and units has evolved, with significant implications for buyers and investors alike.
Widening Price Gap
Over the past four years, the price gap between houses and units in Australia has reached unprecedented levels. Historically, houses have commanded higher prices than units. However, the pandemic has dramatically exacerbated this disparity. House prices have surged by 44.2% compared to pre-pandemic levels, while units have seen a more modest increase of 21.7%. By March 2024, the median house price premium had expanded from 8.4% to a staggering 32%, as reported by PropTrack. In Sydney, this gap is even more pronounced, with houses costing nearly twice as much as units, translating to a significant $710,000 difference.
Factors Behind the Disparity
Eleanor Creagh, Senior Economist at PropTrack, explains that the pandemic has fundamentally altered housing preferences. “Australians now place a higher value on larger living spaces and home offices, rather than proximity to central business districts. This shift, combined with historically low interest rates, has enabled buyers to take on larger mortgages, further driving up house prices,” she noted.
Despite houses outperforming units in 83 out of 88 SA4 regions across the country, the dramatic increase in house prices has made units more attractive in 2024. Creagh notes that units have shown stronger price growth early this year, with a 2.00% increase compared to 1.48% for houses. Cities like Melbourne and Brisbane have seen unit prices rise faster than house prices over the past year, suggesting a trend toward more budget-friendly housing options due to worsening affordability.
Capital City Trends
In every Australian capital city, except Canberra and Darwin, unit prices are growing faster than house prices. Perth, with its more affordable market, has seen a slight lead in unit price growth, while in regional Queensland, unit prices are nearly doubling the pace of house growth. Melbourne stands out with unit prices rising nearly three times faster than house prices, highlighting the ongoing demand for affordable, well-located living spaces in urban areas.
Several factors are driving this shift:
- Affordability Constraints: As house prices become increasingly out of reach, buyers are turning to units as a more affordable alternative.
- Population Growth and Housing Shortages: These factors are driving demand in the unit market.
- Investor and First-Home Buyer Activity: Both groups are attracted to units for their better rental yields and more accessible prices.
In over 60% of suburbs within capital cities, unit prices have risen faster than house prices. For example, 75% of suburbs in Melbourne and nearly 80% in Brisbane have seen faster growth in unit prices.
Outlook
The current disparity between houses and units presents a notable opportunity. With housing affordability continuing to be a significant issue, the medium to high-density housing sector is likely to remain attractive to buyers. Units offer the advantage of proximity to transportation, employment hubs, and amenities such as schools, parks, and cafes. Given the stability of interest rates and the anticipation of a potential decrease later in 2024, demand for units is expected to remain strong.
This evolving market dynamic suggests that while houses may continue to dominate in terms of price, units are emerging as a viable and increasingly popular alternative for those navigating today’s challenging property landscape.
Source: Prop Track
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