Price gap between houses, units continues to widen

The price gap between houses and apartments in many suburbs across Sydney and Melbourne continues to widen, with little sign of slowing.

The widening gap is a long-term trend driven by the scarcity of land in Sydney and Melbourne, with the biggest difference tending to be between houses and high-rise apartments, according to The Sydney Morning Herald.

While house prices in Sydney’s North Ryde spiked 29% in the year ended March 31, unit prices grew only 6%. Prices in Homebush were up 29% for houses and only 7% for units. In Sydney’s Pennant Hills, house prices skyrocketed 24% while unit prices remained flat, according to data from CoreLogic.

The same trend was evident in Melbourne, where house prices in Essendon North spiked 19% over the year to March 31, while unit prices fell by nearly 1%. Canterbury houses posted price gains in excess of 14%, while units fell 4%, the Herald reported. In inner-city Hawthorn East, house prices rose 9.6% while unit prices fell 6%.

A CoreLogic analysis found that more expensive property markets – especially those close to CBDs where there are high numbers of units relative to houses – tend to have the widest price gaps.

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Eliza Owen, head of research at CoreLogic, told the Herald that one of the reasons for the poor price performance of unit markets was COVID-19-related travel restrictions, including the closure of international borders. Demand for investment units in urban centres likely fell due to their high exposure to international students and migrants.

At the height of the pandemic, many units stood empty – especially in inner Melbourne, the Herald reported.

Owen said the reopening of international borders should support unit prices in both Sydney and Melbourne. However, she said the prospect of higher mortgage interest rates was an area of concern, as the price of investment units is more sensitive to rate movements than houses.