The Annual Performance Gap Between Houses And Units Falls Further

The Annual Performance Gap Between Houses And Units Falls Further

Last month saw the fall of the annual performance gap between houses and units to 8.7%. This was due to the markets of both properties declining their January peak growth rate. 

As noted by CoreLogic, units recorded a 0.3% rise in values over March much like its growth rates from the preceding two months. This resulted in an appreciation of 0.9% in the first quarter of 2022. Similarly, housing properties rose 0.8% and in the first quarter 2.8%. 

To compare, national houses are recording greater growth in value than units but have also appeared to decelerate faster quarterly. 

Source: Corelogic

Factors

Let’s talk about market conditions. It seems that affordability has and will continue to be a major contributor to the conditions of the property market and is something that most people take into account when buying and investing. 

Evidently, this is due to the higher inflation rate and the rising cost of living which has significantly impacted the difficulty of saving for a deposit for prospective buyers. * Yes, this has increased in recent years too!* 

The increase in deposit levels rising has made saving for a deposit a struggle for homebuyers. With a 20% deposit required, CoreLogic predicts that the average house deposits will increase by around $36,000, WHILE unit deposits increase by only $15,000. 

This price contrast highlights that since units tend to be cheaper, it is usually easier to save for a deposit making them the better option for homebuyers.

Their previous research has also shown that alleviating concerns regarding the affordability of houses and units are directly influenced by increasing investment in higher density dwellings as this option typically tends to be cheaper.  

As mentioned by Research Analyst Kaytlin Ezzy, this could, in part, be a result of the “ relaxed restrictions around international travel earlier this year, where overseas arrivals tend to be renters, and tend to be concentrated in densely populated parts of cities.” 

Further impact of this is due to growth in housing density near key transport lines since they help maximise the use of property and connectivity to wider regions. 

Capital Cities VS Regional Markets

Capital Cities

Recent research has shown that Sydney and Melbourne unit markets have declined, while the unit markets of other capital cities like Brisbane and Adelaide are growing strongly above 4%. A typical unit in Sydney is pricier than a Brisbane unit and more than double that of Adelaide.

Although the growth rate of Hobart, Darwin and Canberra has been and will continue to increase, this pace has eased up in the previous month. 

According to Domain chief of research and economics Nicola Powell, this is especially prevalent in Canberra.

“What’s interesting about our unit market in Canberra is that it’s seeing a slower pace of price growth compared to houses and I think that in itself makes it much more affordable for a first-time buyer, as well as investors – [from] whom we’ve seen rising activity over the last 12 months…”, said Dr Powell

“and I think those two factors will be helping to support demand for units.”

This has made units in the capital territory a more affordable and popular choice for home-buyers and investors alike as evident by the increased activity by these property buyers in the past year.

Source: Corelogic

Regional Markets

Moreover, the regional markets of the country have observed better unit growth than houses. 

In a state by state comparison, four of them performed exponentially better with regional Queensland being proven to have the highest increase in unit value with a growth rate of 5.9%. 

Following this are:

  • Western Australia (4.3%)
  • Victoria (3.8%)
  • NSW (3.6%)
  • Tasmania (1.7%)
  • South Australia (0.5%)

Within NSW specifically, areas like Kiama and Wollongong are noted to be favoured by property buyers and investors because of this growth.

Kiama

The Current Unit Market

In terms of affordability, the unit stock is relatively cheaper in contrast to detached housing in the same area. An increase in the demand for apartments due to this affordability has seen the opposite for housing demand making it a more favourable option, especially as an entry point for first home buyers. 

Regarding investment opportunities, according to Ms Ezzy, units are a beneficial investment opportunity because of the rental return. 

“units are currently rising faster than capital growth and faster than detached house rents”, she said, that proving its desirability amongst property investors. 

In addition, the ease in travelling restrictions post COVID, especially surrounding international travel, has seen an influx in renters migrating to densely populated areas and directly influencing this increase in unit demand.

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