Difference Between House and Unit Prices at All-Time High in Australia

A 'sold' real estate sign is seen outside a high-rise apartment block in the suburb Kirribilli in Sydney, Australia, on May 8, 2021. Lisa Maree Williams/Getty Images

The gap between Australia’s house and unit prices has reached record high in January of 28.3 percent after houses grew almost twice as fast in value over the same period.

CoreLogic’s latest monthly market update revealed that units recorded a growth rate of 14.3 percent in the 12 months to January while houses grew 24.8 percent in the same period. Together, it is the highest annual dwelling growth rate since 1989.

Kaytlin Ezzy, a research analyst at CoreLogic, said the growth of houses traditionally outpaced units in the last decade, but the difference in performance in the latest cycle was notably bigger.

This gap was partly driven by COVID-19-related demand shocks that disproportionately affected unit demand, with households relocating to lower density housing in droves.

“The annual performance gap between houses and units began to narrow in the final three months of last year, in part due to the lifting of lockdowns and border restrictions as well as increasing affordability constraints diverting demand towards the medium to high-density sector.

“However, in January we saw that annual performance gap start to widen again, which could, in part, be explained by the disparity between the advertised house and unit supply,” Ezzy said.

With the exception of Darwin, the total advertised unit stock was over 30 percent below the five-year average in the capital city and regional markets.

Ezzy said the unit market stands to benefit from a number of factors in 2022. These include rising inflation and the prospect of rate hikes in the latter half of 2022, worsening affordability for houses, tighter lending restrictions, and the reopening of borders.

“Three of the eight capital cities now have a median house price in excess of $1 million (US$718,000) and the gap between national house and unit values is at an all-time high,” she said. “It is likely affordability constraints will gradually pull some demand away from houses towards more affordable units.”

Brisbane CBD is seen from Kangaroo Point in Brisbane, Australia, on Aug. 5, 2021. AAP Image/Darren England

After the international borders reopen on Monday, Australia may see a gradual return to pre-COVID migration levels.

“As most migrants initially rent in Sydney or Melbourne this could help bolster rental demand in those markets hardest hit by the pandemic, which, in turn, could boost investor demand and ultimately, unit prices,” Ezzy said.

SQM Research revealed on Feb. 15 that the residential rental vacancy across the nation had already fallen to a 16-year low.

“It is now very likely market rents will rise by over 10 percent this year,” SQM Research Managing Director Louis Christopher said. “Indeed, it could actually be much more than this as we are recording a rise in the capital city combined rents of 5.2 percent just in the last 90 days.”

BuyersBuyers, an online property buyer assistance platform, noted that there were a number of factors driving the imminent rental shortage.

These include the exit of high volumes of Chinese investors from the market and a substantial number of young renters looking to enter the market.

“As the border reopens many parts of Australia will experience chronically tight rental markets,” it said. “The rental supply is unlikely to respond quickly enough to the surge in demand for rentals.”