Apartment Prices Surging Due To Affordability Gap
Sydney’s dramatic price rises have been disproportionately affecting the market in houses rather than apartments.
Now that a price gap has opened up, that’s beginning to change.
The property market in Sydney’s eastern suburbs may have been booming over 2021 but, so far, houses have been recording much stronger price gains than apartments. Now, we’ve noticed buyer interest in apartments beginning to surge.
Apartment vs house prices over 2021
Between 1 January 2021 and 30 August 2021, the median Sydney dwelling price rose 19.8%, according to CoreLogic data. However, these price gains weren’t shared evenly between houses and apartments.
In fact, the median house price rose more than twice as rapidly as the average unit price, lifting 23.3% compared to 11.5%.
This means, for instance, if you had a $2 million house at the start of the year, you could now expect it to be worth $2,466,000. However, if you had a $2 million apartment at the start of the year, you would expect it to be worth $2,230,000 – still not bad, but $236,000 less than you would have made on a house.
Of course, these are just median prices across the whole of Sydney and don’t necessarily reflect what’s happening in all suburbs and all market segments. For instance, we’ve had some particularly strong sales in the beachside luxury apartment market. However, the numbers do illustrate the broad differences in the level of demand between apartments and houses across all categories.
Why the price gap opened up
From speaking to potential buyers, we noticed that one of the main reasons houses have been in such high demand was simply that a lot of people have been spending a lot more time at home. This made many of us crave extra space and privacy – in many cases, that’s been made necessary by the need to accommodate a home office. It’s also because even though this has been a rapidly rising market, low-interest rates have made it easier for people to borrow more and take the next step up the ladder.
On the supply side, there simply haven’t been enough homes to meet this demand and this has naturally driven prices upwards. On the other hand, higher vacancy rates and fewer overseas arrivals have reduced the pressure on the apartment market. There simply hasn’t been the same imbalance between supply and demand.
Why that’s changing now
People always have a ceiling on what they can afford. Even though record low-interest rates may have pushed that higher, once prices reach a certain point, buyers naturally have to drop out of the market and look elsewhere. And, what they’re often seeing right now, is that there are quality apartments available for a much more affordable price than houses.
This is benefiting a few groups of buyers. Downsizers are finding that the family home is now worth a lot more than they may have once imagined and so some are taking the plunge and selling up to move into their next home.
We’ve also noticed first home buyers coming into the apartment market in bigger numbers in our area. Investors are also starting to return, especially those looking for long-term capital growth ahead of income.
Where to from here?
Already, we’re seeing the rate of growth between apartments and houses start to narrow. In August, the median Sydney house price rose 1.9% while the median unit price rose 1.4%. If you compare this to April 2021, when the market was growing at its strongest, house prices rose 4.3% in a month, while unit prices rose 2.1%.
We expect prices to continue to grow but for apartments to catch houses and potentially even overtake them in the rate of growth. After all, there is still a long way for them to go until they begin to run into the same ‘budget ceiling’ issues that are beginning to impact the housing market. What’s more, as houses become more unaffordable, more and more buyers will drop out of that market and instead focus their attention on apartments, driving unit prices upwards.
If you’re thinking about buying or selling in Sydney’s Eastern Suburbs contact my team today. We’re still running at full capacity and carrying out one-on-one property inspections in line with COVID restrictions.