Just like Audrey: House buyers reaching the tipping point where they’ll opt for a unit
Houses are off the table for many in the hunt for a home so unit prices are going up. Many buyers have reached a tipping point where buying a unit is the only way they're going to get into the property market.
Residz Team 5 min read
The median price for a stand-alone house in Australia is just under $1 million. No wonder houses are off the table for many in the hunt for a home. Yet Aussies have been stubborn in their search, moving to regional areas and smaller cities to get a house they can afford. Only certain tipping points drive them back to the humble unit. In this blog, we chew over a few.
Units on the up and up
You could say unit prices “quietly surged” in 2021. CoreLogic data from November shows the median price of units rose 15.3 percent in Sydney that year to $837,169, 14.7 percent to $568,308 in Canberra, 26.6 percent to $726,779 in Hobart, 11.4 percent to $443,981 in Brisbane, 6.8 percent to $380,058 in Adelaide, 9 percent to $626,449 in Melbourne, 20.1 percent to $368,635 in Darwin, and 12.4 percent to $400,831 in Perth. And prices keep lifting.
Audrey’s character was a unit-dweller
Holly Golightly in Breakfast at Tiffany’s made unit life look so chic. She hosted parties for 50 guests and kept a cat in her New York apartment on East 71st street (which in real life sold for $10.2 million in 2015). Not for her the life of the suburbs, or the quarter acre block.
Median price curious fact
And, it’s hard to believe, but in the late 1990s Australian units had a higher median price than houses. Houses were averaging $111,524 and units $123,840, according to Aussie.
Fast forward to 2022 and the tables have turned.
Now houses with a patch of lawn can be as much as double the price of the second-floor unit down the road.
The pandemic problem
Lockdowns made the home office and a backyard the status symbols of 2020. Houses were in high demand and units were undesirable. Units couldn’t be rented easily as international students packed up and flew home, locals moved back in with mum and dad, and Airbnb mini-breaks were cancelled.
A raft of issues
At the height of the first Covid-19 lockdowns vacancy rates rose as high as 11.7% in Melbourne CBD. It made headlines and spooked buyers. Prior to the pandemic a glut of poorly constructed units was among the reasons experts warned unit owners were playing “Russian roulette with their financial futures”. It’s a warning that has stuck. Propertyology’s 2022 Property Market Outlook puts Avoid Apartments in it’s Top 5 Tips for Investing.
Tipping points for buyers
But, many buyers simply do not have the choice and perhaps find themselves in a high-rise. It’s a high-way or the highway, you could say. There are many reasons a unit ticks all the boxes for house hunters. Let’s have a look at some of the tipping points that have buyers climbing the stairs, peering at balconies, and measuring living rooms to see if the sofa fits.
First home buyers
With first home buyers grants, the bank of mum and dad, and couples reportedly saving upwards of $100,000 you’d expect first home buyers to be spoiled for choice, but they are priced out of contention or face stiff competition for houses, not just in Sydney and Melbourne. Look at the price rises across Australia in this Propertyology graphic.
Units are seen as the stepping stone to building equity and getting a slice of this delicious Australian house pie. And, rent is seen as “dead” money, even if there are arguments against that. There’s also that nagging feeling you’re paying off someone else’s property for them. Why not pay off your own?
Digital nomads
We love the term and we’ve talked about them before here at Residz.com; digital nomads who make up the Great Reshuffle. They have good incomes, complete flexibility on where they work, and a desire to move around. Units mean an investment they can largely ‘set and forget’. With rents predicted to rise in 2022 thanks to an influx of international students and backpackers, nomads will find investing in low-maintenance units to their liking.
Divorcees
Divorcing couples likely want to stay close to schools and friends networks. Selling one expensive house used to buy you two cheaper houses in the same city, if not the same suburb. But huge demand at those lower price points means greater competition for every cheaper home on the market. Surging prices in regional areas has shut off that escape route too. So for many divorcees it’s a case of buying an apartment and somehow stuffing those large sofas and the kids’ king single beds into apartments.
Downsizers
Baby boomers refusing to downsize is said to be contributing to the U.S. housing supply shortage and it could be true here in Australia too. In a Chase bank survey 52% of U.S. boomers said they’d never leave their current home. But ballooning mortgage debt among Australia’s over-55s puts them at risk of using up their superannuation on repayments if they don’t sell. If they do sell, their leftover cash buys them…take a guess….an apartment. Coastal regions so favoured by retirees aren’t cheap anymore, in fact a house anywhere will easily chew up any windfall.
Renters
Then there are the renters who perhaps sold years ago and were waiting for the housing market to settle down. Or they lost their home in a failed business venture. Or their property was used as seed capital for their start-up. For whatever reason, there are plenty of renters out there who are struggling to a) find a property to rent b) justify paying top-dollar for shabby homes, and c) cope with the insecurity of six-month to one-year leases. In mid-2021 rent climbed at its fastest rate in more than a decade, with some weekly payments up 10%, CoreLogic national rent index data shows. Plenty of renters will bite the bullet and buy relatively-affordable units.
Apartment prices will rise further
To finish, Australian apartment prices are going up. In a UK Daily Mail article CoreLogic’s Tim Lawless was quoted as saying “A natural consequence of worsening affordability could see demand increase for more affordable higher density housing options such as townhomes and units.”
Also predicting rises is Stockland’s NSW General Manager Richard Rhydderch who spoke to the New Parliamentary Inquiry into housing affordability and supply in Australia late last year.
“The apartments market, in my view, will have a pretty strong rebound shortly because there has been a massive under-construction of apartments everywhere. You are going to have students coming back, overseas migration, domestic travel, interstate travel, re-emergence of Airbnb,”
he said.
Image source: Breakfast at Tiffany's remake
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