In the past three months, an unexpected trend has emerged in Australia’s property market: apartment prices have surged ahead of house prices in nearly all capital cities, with the exception of Darwin and Canberra, where abundant housing supply has tempered growth.
Interestingly, regional areas in New South Wales and Victoria have also seen apartments outperform houses, while in regional Queensland, both property types have risen in value at a similar pace. This bucks the long-term trend where houses typically rise faster due to the value of land.
So, why are apartments now seeing stronger growth than houses?
Adrian Wilson, principal and director, Ayre Real Estate said the obvious reason is that affordability is really pushing people towards apartments because houses in many desirable areas are simply out of reach for a lot of buyers. Another reason is that we’re experiencing a Covid re-set in real estate.
“Apartments were probably the worst hit during the COVID pandemic. A lot of people were looking for a sea change or a rural property or an opportunity to move further out of the more dense, metro areas.
“I think people are really now only returning to those metro areas. They’re returning to work, returning to environments where there’s lifestyle and restaurants and shops and things around them, so it’s natural that apartments are obviously going to come back into favour and with interest comes increased price.”
On the flip side, he said the housing market probably saw an artificial increase above the norm during that same period.
“We’re starting to see a slower increase in homes than apartments because they moved very differently from 2020 onwards for a couple of years and that gap has to narrow between the two.”
The rising interest rates are making it harder for many buyers to get the finance needed to purchase houses, especially in expensive metro markets. Under current APRA guidelines, lenders apply a 3 per cent buffer to home loan rates when assessing buyers’ repayment abilities. Coupled with increasing prices, this is pushing many buyers to reconsider what type of property they can afford, leading some to shift their focus from houses to more affordable apartments.
We’re also seeing more first-home buyers and investors in the market, and both of these groups tend to target apartments.
The latest Australian Bureau of Statistics (ABS) data supports this: 37.1 per cent of new home loans issued in May went to investors, marking the highest level in eight years. Meanwhile, first-home buyers accounted for 28.7 per cent of new owner-occupier finance, well above the decade average.
Another key driver of apartment price growth is the limited supply of new apartment developments. The construction industry is facing challenges, including a shortage of tradespeople, rising wages, and increasing material costs, all of which are slowing the approval and completion of new developments. According to ABS figures, approvals for new apartments, townhouses, and strata-title dwellings in June were down 22.1 per cent compared to the same time last year.
“The lack of new supply in apartments, combined with the high demand, is definitely pushing up prices,” said Mr Wilson.
Beyond affordability, Mr Wilson identifies other factors contributing to the growing appeal of apartments. For one, apartments often offer a sense of community that many buyers find appealing. “In an apartment building, you’re often surrounded by like-minded people,” he said.
“This is especially true in newer developments where people of a similar demographic tend to buy in.”
In addition to younger buyers, Mr Wilson sees strong demand for apartments from downsizers and lifestyle-oriented buyers.
“At the other end of the spectrum, downsizers are looking for apartments that suit their needs, particularly in the inner-city or prestige markets. These buyers are often seeking larger, higher-quality apartments that offer the amenities and lifestyle they want.”
