City centres are bouncing back


Since the announcement that the country would welcome back overseas migrants and students, there has been a shift in interest in the unit market, particularly in the centre of our major cities.

Eleanor Creagh, senior economist at REA Group, has pulled data for 13 charts to show the current state of Australia’s unit market and where it’s heading.

Extreme divergence between house and unit prices


Unit prices in both regional markets and combined capital cities racked up double-digit price growth last year, but that growth still greatly lagged houses and has done since the onset of the pandemic, Creagh explained.

As of March 2022, Australia’s median capital city house value was $850,000, compared to a median unit value of $590,000.

This marks a 44% difference – the highest gap on record.

However with affordability constraints kicking in, it’s like he did more buyers will turn to townhouses and apartments as houses are now out of their Rich, and this gap will narrow.

Unit price growth lags house price growth


PropTrack’s Home Price Index shows that national house values have appreciated 39% to March 2022 since the pandemic onset, whilst unit values have risen just 16% in the same period.

And the impact of the pandemic on housing preferences has clearly played a part.

As we already know, lifestyle suburbs have surged in popularity as many people make the sea- or tree-change shift to regional areas with close proximity to the CBD becoming less and less important thanks to our new flexible living.

At the same time, the pandemic made people re-evaluate what they want in a home.

Repeated lockdowns and the shift to working from home saw buyers flock to properties that offered more space, making house prices surge and leaving demand for units behind in the dust.

Buyers want properties with more space


The Covid-19 pandemic restrictions significantly changed homeownership goals and what Australians want most in their next home.

With more Australians working from home and juggling school and family commitments under one roof, spacious living fast became the top priority.

As a result, the price gap between units and houses has completely blown out since the pandemic hit.

Low interest rates have also provided an affordability boost for many, allowing people to service more debt, therefore increasing the capacity to purchase a house as opposed to a unit, Creagh explained.

Other factors that have contributed to the relative weakness in the apartment market are lower levels of investor participation, less overseas demand, and weaker rental conditions in inner-city markets.

Investor activity hits a record low

The weaker unit market, extreme difference in prices and overall weakness of the apartment market has been further exacerbated by a record-low level of investor activity in 2020.

These changes culminated in a shifting preference bias towards houses, with a premium being paid for these options, Creagh explained.

And the house price premium is most extreme in Canberra and Sydney where there is currently a price gap of more than 75% between houses and units in both cities.

Investor share of new housing lending, seasonally adjusted


House price premiums in major cities


The house price premium relative to the median unit price is most extreme in Canberra and Sydney.

And the data also shows that the house price premium extended the most throughout the pandemic in the inner Brisbane suburbs.

Here the inner-city price gap between houses and units has widened 50 percentage points since the start of the pandemic, Creagh said.

Premiums in the inner Brisbane suburbs extended the most


Creagh suggests that the extension could be a result of elevated levels of interstate migration into Queensland.

Like the sea-change shift we talked about earlier, the pandemic saw a surge in migration to the sunshine state in search of more affordable housing and lifestyle perks like more sun, less traffic and relatively less time in lockdown.

For the year to September 2021, Queensland added 58,000 people to its population.

That means Queensland’s total population growth increased by 1,100 people every week.

Will it continue?

The recent flooding; cooling NSW and Victorian housing markets; office callbacks and the removal of most Covid-related restrictions will most likely see interstate migration patterns settle back down to the longer-term averages.

House price premium most extreme in inner-city suburbs


Since the start of the pandemic through to March 2022, Brisbane house values have increased a staggering 48%, compared to just 15% for units, Creagh’s data shows.

“In fact, the unit price gap is most pronounced in weakened inner-city apartment markets, where a standstill on international migration and sharp declines in demand from tenants broadly have seen a drop-off in activity among prospective renters and buyers,” she said.


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