These once-unloved properties are tipped to take centre stage this year

Unit prices have already grown faster than house prices so far this year, according to the latest PropTrack Home Price Index, rising 2% at the national level compared to a 1.48% uplift for house values.

In some parts of the country the difference in growth has been even larger, particularly in Melbourne, where units have risen in value about three times faster than houses.

How unit and house prices have changed so far this year

The affordability of units, which are typically hundreds of thousands of dollars cheaper than houses, means that outperformance is expected to persist throughout 2024 and over the coming years, according to a new forecast.

A typical Australian unit is $196,000 cheaper than a house, based on the difference in median values, but in the capitals that difference is even larger, with houses costing $274,000 more.

The relative value apartments offer is greatest in Sydney, where a median-priced unit is $562,000 cheaper than a house. The difference is $344,000 in Canberra, $303,000 in Melbourne and $295,000 in Brisbane.

Median unit and house values compared

PropTrack senior economist Eleanor Creagh said the outperformance of houses over the past few years meant the relative value of units had increased.

“Strong demand for inner-city living post-pandemic, coupled with the rapid rate of population growth and housing supply constraints alongside the relative value units offer are likely buoying buyer demand and pricing in the apartment market,” she said.

Melbourne unit prices have grown three times as fast as house prices so far this year, according to PropTrack data. Picture: realestate.com.au/buy

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But the outperformance of units isn’t a temporary phenomenon, according to Oxford Economics Australia’s latest Residential Property Prospects report, released today.

The combined pressures of population growth, challenged affordability and low numbers of apartment completions will cause unit prices to keep rising faster than house values in the near future, according to report author and Oxford Economics senior economist Maree Kilroy.

“While we expect national price momentum to slow in the second half of this year, it will accelerate again in 2025, with units set to outperform houses over the forecast period,” she said.

Sydney apartment prices are tipped to grow faster than house prices, with the median unit value expected to reach $1 million within two years. Picture: realestate.com.au/buy

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The median unit price across the combined capitals is expected to increase 5.1% by the end of 2024, outpacing house prices which are forecast to grow by 4.7%.

Over the next three years, capital city units will rise 21.3%, while houses will lift 19.5%, according to the report.

The gap between apartment and house price growth over that period is expected to be largest in Sydney (22% vs 17.9%) and Brisbane (23% vs 19%), while houses are predicted to grow a little faster than units in Melbourne and Perth.

Sydney’s median unit price is expected to surpass $1 million within two years, according to the report.

The higher expected rate of growth stands in contrast to the outperformance of houses during the height of the pandemic.

Houses grew in value twice as fast as apartments, which fell out of favour as people fled high-density areas amid lockdowns, seeking more space and lifestyle changes.

But with migration fuelling population growth since borders reopened in 2022, particularly in the capitals, and construction slowing despite the federal government’s aim to build 1.2 million more homes by mid-2029, the ongoing housing shortage is expected to keep unit price growth elevated.

The latest data from the Australian Bureau of Statistics shows unit approvals hit a 12-year low in February, and problems facing the construction industry are contributing to price growth, according to Commonwealth Bank senior economist Belinda Allen.

“Capacity constraints and a rapid increase in costs are plaguing the residential construction industry,” she said.

“We are seeing the impact flow through to prices for existing homes and the rental market.”

Unit approvals have hit a 12-year low, with the ongoing supply crunch pushing up prices for existing homes. Picture: realestate.com.au/buy

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Unit rents in the capitals rose twice as fast as house rents over the past year, jumping almost 19%, and an uplift in yields has attracted more investors back to the market.

But Ms Kilroy believes we’ll see the end of double-digit rental price growth in the coming years.

“Stress on household budgets has reached a level that will significantly limit the capacity for further rental gains while the return of interest rate cuts from late 2024 will ease leveraged property outgoings,” Ms Kilroy said. 

“On balance, we expect this to pass through to more modest rent increases at lease renewal.” 

While unit rents are predicted to grow faster than houses over the next three years, growth rates are expected to be much slower, averaging 3.6% for units and 3.2% for houses.

Originally published at https://www.realestate.com.au/news/these-once-unloved-properties-are-tipped-to-take-centre-stage-this-year/