️ Highlights:
1. The gap between house and unit values has widened significantly over the past four years, with the house premium now at 45.2% or $293,950.
2. Factors such as underlying land value, scarcity, and desire for more space during the pandemic have contributed to the accelerated growth in house values relative to unit values.
3. Capital city house values have increased by 33.9% or $239,000 since the onset of the pandemic, compared to a 11.2% increase in unit values.
4. Sydney has seen the largest expansion in the house premium since the pandemic, followed by Melbourne, Perth, Adelaide, and Brisbane.
5. Suburbs with the largest house premium tend to be affluent markets, while those with the smallest differential in price between a house and unit may offer good investment opportunities.
CoreLogic’s latest research highlights a significant divergence in the growth rates of house and unit values across Australia’s capital cities, a trend that has become increasingly pronounced over the past four years. Since the onset of the pandemic in March 2020, the premium for houses over units has surged from 16.7% to an unprecedented 45.2%, equating to a difference of $293,950. This gap underscores the evolving preferences and market dynamics that have favored detached dwellings over units, particularly during the pandemic.
Factors Driving the House Value Premium
Several key factors have contributed to the accelerated growth in house values relative to units:
- Pandemic-Driven Demand for Space: The desire for more living space and the feasibility of remote work have led many to seek out detached houses, often located further from city centers.
- Land Value and Scarcity: The intrinsic value of land associated with houses, coupled with a scarcity factor, has propelled house prices upward.
- Market Adjustments: Although the house premium contracted slightly during the early stages of the interest rate hiking cycle, it has since rebounded to record highs, with house values rising at a faster pace than units.
Regional Variations and Suburb Insights
The disparity in house and unit values is not uniform across all regions. Sydney, for example, has experienced the most significant expansion in the house premium since the pandemic began, with the gap between house and unit values widening by almost 36 percentage points. Conversely, Darwin saw a reduction in its house premium. Over the past year, while some cities like Sydney and Canberra have seen a further increase in the premium, others like Brisbane and Adelaide have witnessed a slight contraction, reflecting a shift in buyer preferences towards more affordable housing options.
Implications for Buyers and Investors
The growing gap between house and unit values presents both challenges and opportunities for buyers and investors. In affluent markets, the substantial premium for houses over units makes high-density living spaces more attractive for those seeking entry into premium suburbs at a lower price point. Conversely, suburbs with a smaller differential between house and unit prices may offer valuable opportunities for buyers willing to invest in detached homes, which historically yield stronger capital gains over time.
Conclusion
The divergence between house and unit values in Australia’s property market reflects a complex interplay of factors, including changing lifestyle preferences, economic conditions, and market dynamics. As the gap widens, understanding these trends becomes crucial for making informed decisions in the real estate market.