Why House Prices Are Surging Past Units in the Property Market

Property Mar 12, 2024

3 min read

Screenshot 2024-03-12 at 11.02.33 am
Screenshot 2024-03-12 at 11.02.33 am

In a recent research article by CoreLogic, they explore why the widening gap in value between houses and units has become more evident than ever before. While historically, there has been a noticeable discrepancy of around 10% in value between houses and units, the current trend in the market is decisively in favor of houses over units. Median house prices now stand approximately 45% higher than their unit counterparts, marking a significant shift in the real estate landscape.

For those who invested in units back in 2004 when prices were much closer together, this growing disparity poses a considerable challenge. Essentially, it means that if one had opted for a house investment instead of a unit in 2004, their property would have increased in value by 45% more than someone who invested in an apartment.

The discrepancy is particularly striking in certain areas of Victoria, with suburbs like Armadale, Hawthorn, and Carlton boasting house “premiums” of 372%, 354%, and 342% respectively over unit prices. This data suggests that for those aspiring to own property in these sought-after locations but may be unable to afford a freestanding house, investing in a unit could offer a more accessible entry point into those particular markets.

The question arises: what factors have contributed to this growing premium between unit and house prices?

One significant catalyst for this trend has been the COVID-19 pandemic. The era of social distancing and remote work has prompted a surge in demand for spacious properties with amenities like backyards and home offices. People sought refuge in suburban areas and regional locales, leading to increased interest in properties offering more space and privacy. Locations such as the Mornington Peninsula experienced a surge in popularity as individuals sought a reprieve from densely populated urban centers.

Simultaneously, the appeal of apartment living diminished as concerns regarding confined spaces and shared amenities surfaced. News stories of residents being confined within apartment complexes and the heightened risk of disease transmission in densely populated areas further dampened the allure of unit living.

Since then, the preference for houses has only intensified, resulting in a continuous upward trajectory in house prices as demand consistently outpaces supply. This shift in consumer preferences underscores the enduring appeal of standalone properties and the lifestyle advantages they offer in a post-pandemic world.

For savvy investors, understanding and adapting to these market dynamics is paramount. It dictates investment decisions, geographical focus, and the formulation of short, medium, and long-term investment strategies. By staying abreast of trends such as the growing gap between house and unit prices, investors can position themselves strategically to capitalize on emerging opportunities in the property market.