Things seem to be getting harder for upgraders who would like to sell their units for detached homes, as dwelling values clock their fastest annual gain since 1989.
The unique market conditions resulting from the pandemic have resulted in a situation where tenants, first-time buyers, and sellers all struggle with rising rents and house prices.
According to the latest CoreLogic Pulse, unit sellers who are looking to upgrade and get themselves a detached home face a hurdle when it comes to re-entering the market, given the significant gap between house and unit prices.
Over the year to September, houses registered an annual gain of 22.9%, significantly higher than the 12% growth in unit prices.
With such differences, the value of a typical house in a capital city would be higher by 34.4% than that of units.
CoreLogic head of research Eliza Owen said most states and territories have local government areas (LGA) where the value of units is below 40% of the value of houses.
"A trend in this data is that more expensive dwelling markets, particularly in the house segment, tend to correlate with the least amount of purchasing power from units," she said.
"Many of these could be considered more ‘desirable’ housing markets, including those closer to CBDs."
Where upgraders are most likely to struggle
Based on the CoreLogic report, LGAs where units have a higher share in the total housing supply than detached houses generally have bigger gaps in prices.
This is common in Sydney markets. For instance, units make up 64.6% of stock in Strathfield, which resulted in the median unit price being only 23% of the median house value.
The same can be observed in Melbourne's Port Phillip, where units comprise more than 70% of the housing supply.
Units in Port Philip have a median price tag that is only 31% of the market's median house value at $2.02m
"Higher concentrations of unit supply have likely put downward pressure on growth in unit values over time," Ms Owen said.
Of the markets in the list, Mosman Park in Perth is where upgraders could struggle the most.
The overall value of a unit in Mosman Park accounts for just 21.4% of the standard house value.
"In other words, the full value of a unit in Mosman Park would be a little more than a standard house deposit in the same region," Ms Owen said.
Of all capital cities, Hobart has the narrowest price gap, while Darwin and Brisbane have markets where unit prices are above 50% of house prices.
Hobart’s unit market is popular among downsizers, buyers looking for a lower-maintenance option, and investors.
“The vast majority of Hobart units are owned by investors, and units may be in high demand as the short-term rental accommodation markets hold strong amid an uplift in domestic tourism,” Ms Owen said.
The unit market of Kingborough had the highest price gap in Hobart. Despite this, units in this market have a median value that is 71% of the median housing value.
Will the trend soften the housing demand?
Ms Owen believes this current trend present a concerning pain for many upgraders, particularly those who are looking for more space for their families.
"Looking at the change in unit values as a portion of housing over time, shows apartment owners in the current market would be able to put less towards a house than they could five years ago," she said.
However, Ms Owen said this presents an opportunity for other buyers, as cheaper units "accommodate greater socioeconomic diversity for living closer to the CBD”.
"We could see unit purchases becoming more popular as demand is deflected away from houses simply due to affordability constraints," she said.
"With investment activity picking up, interest in medium to high density styles of housing could lift as investment demand has historically been skewed towards the unit sector."
Photo by Yosep Surahman on Unsplash.