As Australia’s housing market continues its post-pandemic rebound with monthly property price rises, new data shows that the price difference between houses and apartments has increased by a record 45 per cent over the past four years.
The figures from CoreLogic show that the gap between house and unit prices has sharply increased by almost $294,000 for three main reasons: rising underlying land values, the scarcity of freestanding homes available for purchase, and the desire for more space.
Between March 2020 and January 2024, house prices in capital cities rose by 33.9 per cent, or $239,000, while unit values in the capitals rose by just 11.2 per cent — equivalent to $65,235.
In the past 12 months alone, house values have risen by 11 per cent ($93,552) while unit values are up by 6.9 per cent ($41,789).
“It’s an underlying scarcity pushing up the value of the land, not the structure on top of it,” said CoreLogic’s research director, Tim Lawless.
“That’s probably been the key factor that’s driven up detached housing prices so much higher than units.
“If you want an affordable detached house, you need to look further and further afield from the city.”
Although house prices have traditionally been more expensive than medium and high density units and apartments even before the pandemic, every capital city has been affected by the change in the past four years — even with the resumption of interest rate hikes by the Reserve Bank.
“It’s not like this is just Sydney or Melbourne pushing the numbers around, it’s happening across every capital city to some extent,” Mr Lawless said.
“But it is clear that Sydney has seen the biggest difference. Coming into the pandemic, there was about a 33 per cent premium for houses, that’s now risen to 68 per cent.”
Mr Lawless said the widening gap between house and unit prices in Sydney’s property market appeared to be “counterintuitive”.
“As a [housing] market, it’s the most expensive and has the most affordability challenges, yet we’ve seen it also record the biggest widening between house and unit values,” he said.
“It suggests that the buyers seem to be willing to pay this premium to have some space, to have a yard in a detached home.
“Or maybe it simply reflects this underlying scarcity value of land that’s really pushing prices higher, but once again, people are still prepared to pay that.”
Mr Lawless said that the widening of the gap was proof that house prices were becoming increasingly unaffordable for more people, particularly first home buyers and households with lower incomes.
“With housing affordability remaining a key challenge across Australia, the substantially lower price points across the medium to high density sector are likely to become increasingly in demand as buyers become more willing to sacrifice space for proximity to essential amenities,” he said.
A future of cheap houses or expensive units?
With the widening gap between house and unit prices, Mr Lawless said it was a likely scenario that apartment prices would increase.
“I think that’s probably a fair enough outlook, that we will see more demand being deflected towards the medium and high density sectors, and that’s where people’s budgets will probably carry them, not really due to any preference shifts,” he said.
“It’s also probably fair to say, given how much this gap has opened up between houses and units, that units are becoming undervalued, at least in relativity to houses.
“So with that in mind, you can also see it in the rental yields, where gross rental yields for units have always been higher than houses have been, but again that gap has widened to some extent, which also probably just reflects undervaluation in relativity to detached housing for the unit sector.”
Comparatively, Peter Tulip, the chief economist at the Centre for Independent Studies, said that the prices of both houses and units would fall because of “offsetting influences” on relative prices in two areas.
Assuming more apartments were being built, Mr Tulip said it would push both apartment and house prices down — but would likely have a greater effect on apartment prices.
Mr Lawless said there is “some risk” that house prices will come down in the medium to long term.
“Simply because if we do start to get our act together in terms of getting supply in the market, if that does ultimately get delivered, then it could have some levelling out or some downwards pressure on housing prices,” he said.
“But I’ve got to say, that seems to be an outside scenario at the moment … we have this aspirational target from the federal government of delivering 1.2 million well-located homes in the next five years, and we’re not making any progress towards that, at least in the early stages.”
For that to be achieved, Mr Lawless said it would require 20,000 dwellings to be approved every month, but only 14,000 are being approved currently.
“I simply can’t see that target being achieved, and it looks like the market will continue to be under supplied over the coming years,” he said.
The end of the great Australian dream?
Mr Lawless noted that house values rising at a faster rate than units has been a “long ongoing trend” since before the pandemic, and anecdotally said it appeared Australia’s “love affair with land” was the biggest underlying driver.
“I think that really highlights that the underlying scarcity of land in our largest capital cities is the key driver here, and maybe you could add that town planning and restrictive zoning, maybe not allowing enough lower density supply into the market, or our willingness to build infrastructure connecting outer fringe suburbs where we can cut up more land and deliver more housing as well,” he said.
“But given how sharp the change has been from the pandemic through now, I think that also demonstrates the second thing, which is that Australians still seem to have a love affair with land.
“It’s still loosely described as the great Australian dream, that people want their own block of land with a house on it and a bit of space, and I think that premium for space became apparent through the pandemic, and it seems to have held on.
“We’re not really seeing any major difference in these trends. We’re still seeing house values rising at a faster pace than unit values over the most recent 12 month period.”
But Mr Lawless said it was unlikely that the great Australian dream would undergo a modern transformation.
“I wouldn’t be surprised if we do start to see more demand being deflected towards the medium and high density sector, and by that I mean townhomes all the way through to high rise units, simply because that’s where people’s budgets are going to be taking them,” he said.
“I wouldn’t necessarily say more Australians will be having a preference shift and preferring to live in a unit over a house, that’s probably more of a change out of necessity.
“If we want to see more people getting into home ownership, it probably means we will see more people opting for a higher density option, given the lower price points.”
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