The ever-growing price gap between houses and units
If you’ve been keeping an eye on the real estate market, you may have noticed some interesting trends. One I’ve been keeping my eye on is the ever-growing price gap between houses and units.
In September 2021, the national median house price stood at $570,000, which was 9.6% higher than the median unit price of $520,000. But if we skip forward to May 2023, we find that the average house now costs approximately $725,000! That’s a staggering 30% more than the cost of a typical unit, and a huge price jump in my opinion.
Causes and contributions
A significant factor contributing to the difference in price is the way in which house and unit prices have been changing in the capital cities. Over the past five years, the median house price surged by 31.6%, while units only saw a modest increase of 9.8%.
One of the main reasons for this disparity was the pandemic. With the closing of borders and loss of overseas students and workers, the inner-city unit market took a serious hit. The growing number of vacant apartments prompted many investors to sell, leading to an oversupply of units and subsequently reduced demand and prices.
Simultaneously, the rise of remote work made people seek out houses with more space for a home office and a larger outdoor area. This shift in preference resulted in increased competition for houses, driving up their prices even more.
To add fuel to the fire, record-low interest rates during the pandemic made it easier and ‘cheaper’ for people to borrow more money. Those who previously could only afford a unit suddenly found themselves in a position to compete for houses, which inevitably pushed prices up.
But let’s also not forget about government incentives such as the HomeBuilder scheme, which primarily targeted house construction and renovations. These incentives acted as an additional catalyst for the surge in house prices.
Cities experiencing the most growth
Without a doubt, Hobart takes the cake in the five-year growth category across all the capitals throughout Australia! Even before the pandemic, Hobart grappled with a housing shortage, which subsequently worsened during the pandemic with the increase of people looking for a lifestyle change. But startlingly, Regional Tasmania overall outperformed other regional areas with its huge 78.7% increase in house prices over the past five years.
While Adelaide and Brisbane also witnessed high demand in 2021 and 2022, it was Regional Queensland that saw a staggering 57.3% price hike due to record interstate migration over a five-year period.
Regional areas in Victoria and New South Wales also grew by 52.9% and 51.7% respectively, due to a collective shift in lifestyle preference set about by the pandemic.
Biggest price gaps
Seeing Greater Sydney reach a jaw-dropping median price gap of 74.5% is simply stunning to me. To put things into perspective, this gap stood at a comparatively modest 29.1% at the start of the pandemic. But as Sydney’s inner-city unit market suffered during the initial lockdown, which caused unit prices to decline, the demand for houses (especially in highly sought-after areas) skyrocketed, contributing to the significant disparity we see today.
So, there you have it, friends! While it isn’t too reassuring to see how rapidly the price gap has grown since the start of 2020, at least we’re able to make sense of marketplace trends such as the growing gap between houses and units as they arise, using this to guide us in understanding property market developments in the future.
If you’d like more information on how these growing price gaps may affect you on your homebuying journey or search for an investment property, give us a call on (02) 8916 6172 or shoot us an email at email@example.com. We’re always happy to assist!