Buyers who can’t or won’t pay the house price may still be able to participate in the housing markets by leveraging the divergence.
McGrath Estate Agents founder John McGrath, executive director of McGrath, stated that buyers who miss the more competitive housing market do not have to give up.
“The good news is that the widening price gap means if you switch your search, you’ll be able to afford the best apartment you can find because the budgetary step down is huge — at least 50%,” Mr McGrath said.
The price gap between houses and units continues its widening
Recent figures from CoreLogicThe gap between house prices and unit prices was 30.5% as of June 2020. This gap is the largest ever recorded.
These results were consistent with data from Upside Realty (national agent), which focused only on four cities: Sydney Melbourne Canberra Brisbane.
Upside Realty reported that Canberra was the most affected by the gap. The median home value in Canberra is now twice as high than the median apartment price. Over the past six month, this gap has been “seismic”, 47%.
The gap was most notable in Sydney, which saw it grow by 32% over that same period.
Upside Realty director of sales James Kirkland said while many families would prefer to buy a house, it would cost them an additional $600k per year over an apartment – a year ago that was $400k.
“The gap between units and houses has now widened in Sydney by more than $200K in a single year,” Mr Kirkland said.
“This has been mirrored across the country, with Canberra also showing a $178K gap in that same time.”
The difference between Brisbane’s and Melbourne’s dwelling prices was 21% and 28%, respectively. This is a significant rise.
Mr Kirkland said while families are being lured by the extra space a house can provide during the pandemic, the price gap between units and houses won’t last forever.
“COVID-19 and the lockdowns have driven unprecedented desire for extra space and a backyard, so the housing market has increased at a much greater pace than units – more than we have ever seen before,” he said.
“In the short term we think this gain is going to continue widening, but ultimately it’s an artificial one – we won’t be working from home forever. There’s going to be a big shift in the long run.”
Apartments that are not overpriced should be considered
Kirkland said that buyers need to be aware of current trends when buying a home. This is because historically, the value of both houses and units has increased at the same speed.
He stated that although there wasn’t a significant gap between them, they had seen one the last time they saw it was March 2019. It was $100K less than what happened between December 2017 and March 2019 and lasted more than 18 months.”
“We now see a gap that is more then twice as big in the past six months.
“This clearly indicates that apartments are undervalued right now.”
A young family would spend $1.2 million to purchase an older house in Sydney that might need some repairs.
Kirkland said that an apartment with comparable quality in the same location could cost less than $1m.
He stated that families are being lured by extra bedrooms and extra space and end up moving further away from the schools or workplaces where their children attend, as well as where they have friends, family and relatives.
“A quality post code will yield better results long term than moving five suburbs away from where you want to be, because that’s where you can afford a house.”
McGrath agreed with the sentiments. McGrath shared the same sentiments and suggested that buyers consider quality when purchasing at a higher price than the median local price.
“You should not purchase the worst home possible in the best neighborhood. You should instead buy the best home in second-best. If that fails, then start thinking about apartments but always buy quality,” he said.
“This is especially important with apartments because the market is much larger, so you have to prioritise uniqueness and desirability to ensure above average capital growth for your property.”
McGrath suggests you look for an apartment that has a bigger floor plan and other unique features.
He claimed that some modern developments offer buyers a more home-like lifestyle at lower prices.
The modern style of apartment is a result both of the growing preference for apartment living by younger families and the downsizing of baby boomers in recent years. These people look for apartments that are larger than the 70-square metre units.
“They want spacious interiors, a decent sized terrace for outdoor dining and ideally, their own patch of land with some garden and lawn space for the kids,” Mr McGrath said.
“Developers are catering for this more and more, so you might be surprised at the quality of home you can buy in the apartment market today.”