What’s behind the growing gap between house and unit prices?

The trend is clear, the gap between house prices and unit prices is widening.

This was not always the case.

The gap between housing prices and unit prices is widening. Source: Getty Images.

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House price and unit price growth began to diverge in late 2021. In September 2021, the national median home price was $570,000, 9.6% higher than the median unit price of $520,000.

But fast forward to May 2023, and the price of a typical home is $725,000, which is 30% higher than the price of a typical unit.

This is mainly due to intra-company disparities and increased unit prices in the Tokyo metropolitan area. The median home price is up 31.6% from five years ago, but the number of units is up only 9.8%.

So why did the number of houses increase more than the number of houses?

The main driver of the increase was the outbreak of the pandemic.

The closure of borders and the loss of international students and workers has had a negative impact on the urban housing market, with vacant apartments overflowing and investors rushing to sell. As a result, an oversupply of units led to a drop in demand, which in turn drove prices down.

Apartments in the city center were vacant as borders were closed and students and workers were barred from entering or exiting. Source: Getty Images.

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At the same time, the shift to ‘work from home’ has led property seekers to seek homes with larger study spaces and more outdoor space.This trend has increased competition and increased home prices

What’s more, record-low interest rates during the pandemic have made it cheaper to borrow more money. People who were previously only able to afford single-family homes may now compete for housing, which could drive prices even higher.

Government incentives, such as the HomeBuilder program, were primarily targeted at housing and encouraged the construction and renovation of homes.

Which city or region experienced the biggest increase in home prices?

Hobart recorded the highest five-year growth of any capital city. Hobart was already experiencing a housing shortage before the pandemic, made worse by his pandemic-induced shift in lifestyle preferences.

In fact, Rural Tasmania outperformed all other Rural Areas, increasing by 78.7% over the past five years.

Adelaide and Brisbane also experienced strong demand in 2021/22, pushing higher growth than other capital cities.

Rural Queensland was the winner during the pandemic, with record interstate travel, which pushed up prices. Over the five-year median home price he rose 57.3%.

Rural Victoria and New South Wales have also benefited from the changing tastes caused by the pandemic, as city dwellers moved further out of the city to take advantage of more affordable and spacious housing. As a result, median home prices in both regions rose 52.9% and 51.7%, respectively.

Demand for units was also high during the pandemic, but not as much as housing.

Hobart’s real estate shortage led to a surge in demand and prices for properties, resulting in a five-year growth rate of 49.2%.

However, demand for housing has fallen significantly in most cities, resulting in median five-year price increases ranging from 2.18% in Melbourne to 29.3% in Canberra.

Where have home prices and unit prices increased the most?

Greater Sydney has the largest median gap between house prices and unit prices at 74.5%. At the beginning of the pandemic, it was just 29.1%.

Sydney’s inner-city housing market was hit by the first lockdowns, with unit prices dropping. At the same time, rising demand for housing, especially in prime neighborhoods, drove prices up.

Hobart’s home price-to-unit price gap has remained fairly stable over the past five years. That’s because housing shortages have pushed median home prices and unit prices up significantly.

Five years ago there was a 27% difference between the two medians. Now it’s 30%.

High demand for housing in rural Victoria during the pandemic resulted in a 41.6% gap between house prices and the median unit price. In contrast, rural Queensland has seen demand for both homes and units, with a narrowing median price gap.

Land is a scarce commodity

Another factor that affects housing prices, beyond unit numbers, is the availability of land in urban areas compared to rural areas.

Land is a limited resource, and its scarcity has led to high housing prices, especially in desirable areas like Sydney.

Australia’s urban centers are running out of available land. Source: Getty Images.

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Vacant land in urban areas is more likely to be used to build apartments than single-family homes, maximizing the developer’s return on investment. And as time goes on, available land dwindles and house prices rise even more.

To show how much land prices have varied by city or region, and how much they have risen, the graph below shows the median price per square meter of homes listed in the cities and regions. I’m here. realestate.com.au.

Greater Sydney has the highest price per square meter of any capital city, up 37% since the pandemic began.

Continuing shortages of land and demand for space suggest that the gap between house prices and unit prices may continue to widen.

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PropTrack Home Price Index – June 2023