The gap between house and unit values has dramatically increased over the past four years, driven by the pandemic’s impact on preferences for more space and underlying land value, according to the latest insights from CoreLogic.
From March 2020 to the present, the premium for houses over units in capital cities soared from 16.7% to a record 45.2%, equating to a difference of $293,950.
Tim Lawless (pictured above), CoreLogic research director, attributed the significant rise to several factors, including a pandemic-induced demand for larger living spaces and the ability of residents to relocate further from city centres.
“While we saw the premium contract through the early part of the rate hiking cycle as house values fell more than unit values, across the combined capitals the gap between house and unit values has since rebounded to a new record high as house values once again rise at a faster pace than units,” Lawless said.
Since the pandemic began, capital city house values have risen by 33.9%, while unit values have seen an 11.2% increase. Sydney led the expansion in house premiums among the capitals, followed by Melbourne, Perth, Adelaide, and Brisbane, each witnessing substantial growth in their house premium. Interestingly, Darwin saw a decrease in its house premium, reflecting the dynamic and divergent trends across cities.
“Over the past 12 months, we see a different picture. While Sydney tops the table again for largest 12-month change in premium followed by Canberra, several cities have seen the premium shrink back a little, including Brisbane and Adelaide,” Lawless said. “This could be reflective of homebuyers seeking out more affordable housing options, which has diverted more demand towards units.”
The suburbs with the largest house premiums are predominantly located in Sydney, Melbourne, and Perth’s affluent markets, with Bellevue Hill, Armadale, and Mosman Park topping the list.
“Homebuyers attracted to these blue-chip suburbs who can’t afford a freestanding home may be attracted to the significantly more affordable price point to get into a high-end suburb,” Lawless said.
“Conversely, the suburbs with the smallest differential in price between a house and unit may offer good buying opportunities for those able to stretch themselves to secure a piece of land without the hefty premium we’re seeing more broadly across many parts of our cities. With houses typically yielding a stronger capital gain outcome over time, these suburbs with a lower house premium could be strong investment opportunities.”
House prices have become unaffordable for an increasing segment of the population, particularly first-time home buyers and lower-income families. As housing affordability continues to be a major issue in Australia, the more affordable options in the medium to high-density housing sector are expected to see rising demand from buyers prioritizing location over space, Lawless said.
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