The suburbs where unit values are rising 11 times faster than houses

May 10, 2024

Unit values in six out of 10 suburbs across the capital cities rose faster than houses over the past three months – as much as 11 times faster – driven by strong demand from investors seeking higher rental yields and home buyers looking for affordable options, data from CoreLogic shows.

Slower house price growth and accelerating unit values have narrowed houses’ premium over units to 45.4 per cent, down from 45.6 per cent in the previous three months. During the same period, house prices rose by 1.7 per cent, while units increased by 1.8 per cent.

CoreLogic research director Tim Lawless said unit price growth was likely to continue to outpace that of houses until affordability eased, and more supply was added to the market.

“I think we’re probably moving into a phase where at the very least, the unit sector will perform more closely to houses given the significant value differences between the two segments,” he said.

“The combination of affordability and low supply as well as increasing demand from first home buyers looking to escape the tight rental conditions would likely support unit price growth over the near- to medium-term.”

Scott Kuru, a co-founder of consultancy Freedom Property Investors, said improving rental yields and faster capital growth in some well-located apartments were also attracting more investors into the sector.

Gross rental yields for units rose to 4.5 per cent last month across the capital cities, according to CoreLogic.

“Investors are snapping up apartments because they are more affordable and the yields are becoming quite attractive at around 5 per cent, so it makes sense from a cash flow perspective,” Mr Kuru said.

‘There’s barely any new apartments being built’

“I think apartment values will increase substantially in the next two to three years because there’s barely any new apartments being built, and we’re still going to get relatively strong immigration.”

Across Brisbane, a bigger rise in unit values at 5 per cent compared with the 2.7 per cent gain for houses has shrunk the price gap by 3.5 percentage points to 53.3 per cent.

The price difference between Sydney houses and units narrowed by 0.7 of a percentage point to 68.3 per cent; in Perth, it reduced by the same amount to 48.1 per cent.

The premium for houses over units fell 2 percentage points to 55.7 per cent in Adelaide and was down by 1.1 percentage points to 53.6 per cent in Melbourne.

Unit prices in Teneriffe, an affluent inner Brisbane suburb, climbed 11 times faster than houses, rising 6.2 per cent compared with the 4.8 per cent decline for houses.

In Kippa-Ring, located 31 kilometres north of the city, unit values rose more than nine times faster than houses. In Mount Warren Park and Eagleby in the Logan-Beaudesert district, they were more than eight times higher.

In Sydney, unit values jumped more than seven times higher in Picton, located 90 kilometres south-west of the city, and by the same amount in Willoughby in the Lower North Shore. High demand for units lifted values more than five times higher than houses across Telopea in the Parramatta area, and in Brighton-Le-Sands and Strathfield South in the inner west.

Unit prices rose more than six times faster than houses in inner Melbourne suburbs Ascot Vale and Port Melbourne, and more than five times higher in Essendon, Mont Albert and St Kilda.

“The broad-based outperformance of units over houses shows the widespread nature of affordability constraints and the fact that units outpaced houses even in some of the more outer fringe markets where typically there’s more demand for detached housing,” Mr Lawless said.

“I think the price pressures as well as the tight rental markets are incentivising renters to purchase a home and the obvious option is to look at units where price points tend to be lower.”

But although units are likely to outpace house price growth over the next few years, the tide could quickly turn once more supply is added to the market, according to Mr Lawless.

“It’s hard to say how this burgeoning undersupply that we’re seeing in the unit sector will play out over the long run because we know that the sector can be much more susceptible to significant supply fluctuations,” he said.

“That doesn’t look like an imminent risk, but it’s probably something to consider over the medium to long term that when the pendulum of supply does eventually swing, there can be quite bulky additions of supply to the marketplace.”

Ray White chief economist Nerida Conisbee said higher-quality apartments could be a better option over the long term.

“Over the past 10 years, we have found that better-quality apartments outperformed cheaper apartments,” she said.

“If you are buying an apartment, buy high-quality and in a desirable suburb with good transport and retail amenities.”


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