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The premium for houses over units has hit record highs as demand for detached houses continues to increase, new research has shown.
With the median capital city house price sitting at $797,287 and the median unit price at a much lower $611,117, the gap between median house and unit prices has increased to 30.5 per cent as of June 2021 – the highest on record, according to CoreLogic’s latest Property Pulse.
CoreLogic’s head of research, Eliza Owen, said the widening of the price gap was largely driven by the increasing demand for detached houses since the onset of COVID-19.
In the past 16 months, capital city house values rose 14.2 per cent – more than double the 5.6 per cent rise in capital city unit values over the same period.
“Several factors have been identified as to why the COVID period has seen more demand for houses than units, which has contributed to greater preference for lower-density housing options… [including] subdued property investment levels through 2020, the initial design of HomeBuilder being better suited to house developments, and the general appeal of lower-density housing through a viral pandemic,” according to Ms Owen.
Six of the eight capital cities have reached record highs, with Sydney, Melbourne, Brisbane, Adelaide and Canberra recording their biggest gaps between median house and unit values over the past 15 years.
Meanwhile, Hobart and Darwin’s price gaps have been trending down, with Perth coming off record highs – from 39.1 per cent over May to 38.9 per cent over June.,
As of June 2021, the largest price gap was recorded in Canberra at 74.8 per cent, while the least significant was seen in Hobart at 32.3 per cent.
Looking ahead, Ms Owen expects a narrowing of the value gap between houses and units as demand for unit stock increases due to “higher levels of vaccination [paving] the way for safer high-density living, and affordability constraints [reaching] in detached housing”.
CoreLogic laid out the pricing dynamics across each capital city:
Price gap: 54.2 per cent
The price gap in Sydney started to widen in September 2020, as the house market recovered following the easing of social distancing measures. While house values were in for a revival, unit values continued to decline through to January 2021 as a result of low levels of investor participation and subdued rental conditions amid the absence of overseas migration.
“As the Sydney lockdown reinforces the lasting impacts of COVID-19 on large cities, and monetary policy remains accommodative, Sydneysiders who can afford it may still be willing to fork out a premium for detached housing in the months ahead,” Ms Owen said.
Price gap: 52.4 per cent
Melbourne’s price gap reached a record high in June 2021 as the Victorian capital saw “the weakest rental market performance” since the onset of COVID-19. With a large portion of rental stock being units, demand across the segment naturally dampened.
According to Ms Owen, a prolonged period of high unit supply and the development of high-density stock kept unit values relatively low, but this could change as unit construction falls and new houses construction rises through the remainder of 2021.
Price gap: 58.2 per cent
The wide price gap in Brisbane essentially resulted from house values increasing 15.5 per cent since the onset of the pandemic, while unit values increased only 5 per cent.
But despite the larger gap compared with Sydney and Melbourne, the gap between Brisbane’s house and unit values has risen fairly consistently since mid-2015. This is likely owing to the substantial increase in unit construction across the capital city through to late 2016, which created “an overhang of stock when investor activity began to decline off the back of changes to macro-prudential policy in late 2017”.
Price gap: 53.5 per cent
Like most capital cities, Adelaide’s price gap accelerated post-pandemic, particularly since February 2021. Since the onset of the pandemic, house values in the SA capital rose 16.2 per cent, while unit values rose a much lower 7.3 per cent
But like Brisbane, the uplift in the price gap wasn’t unusual for Adelaide as it has long enjoyed a premium on houses relative to units, with an average differential in the median of 34.7 per cent for the past 15 years.
Price gap: 38.9 per cent
Perth recorded the second-lowest premium of the capital city markets, just behind Hobart. Prior to this, the WA capital had a 15-year average house premium of 25.6 per cent – the lowest of all capital cities.
“Part of this is due to the relatively high stock of low-density housing across Perth, while units tend to be centred in more desirable or inner-city locations, which would see relatively high median unit values,” according to the researcher.
The capital city’s price gap comes off a record high as a result of house values rising by only 0.1 per cent, while unit values rose 0.6 per cent since the onset of COVID-19.
Price gap: 32.3 per cent
Unlike most capital cities, the price gap in Hobart has been trending down, falling to 32.3 per cent from a recent high of 35.9 per cent in February 2021 as the growth of unit value (18.7 per cent) inched closer to house value (21.1 per cent). The current gap is above the 15-year average of 27.6 per cent
According to Ms Owen, the lack of available stock and the extreme affordability constraints, as well as the strong resurgence in investor interest, have influenced the increase in demand across the unit segment.
Price gap: 68.5 per cent
Despite having the second-largest price gap of all capital cities, Darwin has actually been trending down following a recent high in September 2020. Like Hobart, house and unit values in Darwin have seen a similar uplift since the onset of the pandemic, at 24.3 per cent and 22.5 per cent, respectively.
The consistently large gap in Darwin’s prices was believed to have begun in late 2017 amid a decline in investor activity, Ms Owen said.
Price gap: 74.8 per cent
Recording the largest gap between house and unit prices across capital city markets, Canberra has seen a 22.7 per cent increase in house values since the onset of the pandemic – much higher than the increase in unit values at only 8.7 per cent.
But the gap wasn’t just a result of the disparity of demand between the house and unit segments, according to Ms Owen.
“Canberra has seen a very large volume of unit developments over the past decade relative to houses. For the 10 years to March 2021, there was an average 4,593 units under construction each quarter compared with just 841 houses – which equates to roughly 5.5 units supplied to the market for each house construction, relative to the national average of 2.0 units for each house over the decade.
“This strong uplift in unit supply has left unit price growth relatively subdued,” the researcher said.
A house refers to a building or property used as living quarters or an individual’s place of permanent or temporary residence.