The difference between the median capital city house value and unit value is now 45.2%, or almost $294,000, according to CoreLogic.
Before the pandemic in March 2020, the gap, referred to as the ‘house premium’, was 16.7%.
CoreLogic attributes the vastly widened gap to underlying land value, scarcity, and people’s desire for more space during the pandemic.
Research director Tim Lawless said while houses have historically attracted a price premium over units, the gap has accelerated over recent years.
“The house premium rose sharply through the pandemic upswing as more people sought out space and were willing and able to live further afield in our cities,” Mr Lawless said.
The house premium narrowed during the early stages of interest rate hikes, starting in May 2022, as house values dropped more than unit values.
“The gap between house and unit values has since rebounded to a new record high as house values once again rise at a faster pace than units,” Mr Lawless said.
In less than four years, capital city house values have increased by almost 34%, or $239,000.
Unit values over the same period have risen 11.2%, or by $65,000.
Sydney market leads the gap
Across the capital cities, Sydney has seen the biggest explosion in the house premium, with the gap between house and unit values widening by almost 36% since the pandemic.
It far outstrips the other capitals where the house premium grew by between 15-16% in Melbourne, Perth, Brisbane, and Adelaide.
Darwin saw the gap narrow by around 12%.
Gap trending lower
The last 12 months paints a different picture; Sydney again saw the biggest widening of the house premium followed by Canberra while the house premium shrunk in Brisbane, Adelaide, and Hobart.
“This could be reflective of homebuyers seeking out more affordable housing options which has diverted more demand towards units,” Mr Lawless said.
Many of the suburbs with the largest premium for a house are the country’s most high-end housing markets.
In Sydney, Bellevue Hill in the eastern suburbs leads the gap with a house premium of 527%.
In Melbourne, it is inner-city Armadale while in Perth, it is the inner-west suburb of Wembley with the widest gap between house and unit prices.
Buying in small gap suburbs
Conversely, the suburbs with the smallest gap between house and unit prices could offer some good opportunities for homeowners who are able to stretch to buying a house, Mr Lawless said.
Perth’s north-western suburbs of Nollamara and Balga lead the nation in having the smallest house to unit gap at around 6%.
Doveton in Melbourne’s south-east has recorded a 12.4% gap while Ettalong Beach on the New South Wales central coast leads the state in the lowest house premium at 16.6%.
“With houses typically yielding a stronger capital gain outcome over time, these suburbs with a lower house premium could be strong investment opportunities,” Mr Lawless said.
Future trend
In its latest data, PropTrack measured Australia’s housing affordability index at its lowest level in three decades.
Its Housing Affordability Report, released in September, found households earning the median annual income of around $105,000 could afford just 13% of homes on the market in the previous year.
Mr Lawless said with housing affordability remaining a key challenge across Australia, lower price points across the medium to high density sector are likely to become increasingly in demand.
He said this will happen as buyers become more willing to sacrifice space for proximity to essential amenities.
“Alongside lower prices, medium to high density housing options are often strategically located close to transport networks, major working nodes, and high amenity precincts,” he said.
Image by Alex Radelich on Unsplash
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