House vs. Unit Values: A Shift on the Horizon?

Discover why the gap between house and unit values may be narrowing soon as buyers reconsider their priorities for space and comfort.

The ongoing pandemic has brought about significant changes in the real estate market, with border closures and lockdowns prompting many individuals to seek out new lifestyles and locations outside of the inner city. At the same time, record-low interest rates have made borrowing more affordable, allowing buyers to upgrade to larger properties that were previously out of reach. According to data from PropTrack, the gap between median house and unit prices has widened to multi-decade highs, with houses now commanding a 31.9% premium over units, equating to a difference of approximately $195,000. This marks a significant increase from the 10% gap seen in the years leading up to the pandemic.

As more workers begin to return to the office and households face growing affordability challenges, a recent report suggests that unit prices are poised to outpace house prices in the near future. The latest Residential Property Prospects report by Oxford Economics Australia forecasts a surge of over 17% in national unit prices by December 2026, compared to a projected growth of 12% for house values over the same period. Among the capital cities, Perth and Sydney are expected to lead the way in unit price growth, with forecasts indicating total growth of 27% and 20% respectively between December 2023 and June 2026. House prices in these cities are also expected to see growth, with Perth projected to experience a 22% increase and Sydney an 11% increase over the same period.

The rise in interest rates has resulted in a decrease of over 30% in borrowing capacities for the average borrower since the Reserve Bank began increasing the cash rate in May 2022. This tightening of borrowing capacity, coupled with the surge in national weekly house and unit rents by 10.5% and 17% year-on-year respectively in January, has further exacerbated the challenges of housing affordability. As a result, some buyers may be compelled to shift their focus from freestanding homes to units. PropTrack data indicates that there has been a noticeable increase in buyer interest in units, particularly as more workers return to the office and migrant workers and students resume their activities.

The real estate market is experiencing significant shifts in response to the ongoing pandemic, changing buyer preferences, and economic factors such as interest rates. While houses currently command a premium over units, the forecast suggests that unit prices will outpace house prices in the coming years. As affordability challenges persist, buyers may need to reconsider their housing options and explore alternatives such as units.