The real reason Australian apartment prices are surging
Units have outperformed houses in every capital city except Darwin and Canberra over the past three months
2 min
Apartment prices are rising faster than house prices in most capital cities as more home buyers are forced to compromise on the type of property they purchase due to affordability constraints and restricted borrowing capacity. More owner-occupiers are deciding their budgets are too stretched and they would rather buy a high–quality strata home instead of a house requiring renovations.
Additionally, growing demand from investors due to rising rents, low vacancy rates and ongoing capital growth is also pushing up apartment prices. Investors now represent 37.1 percent of the value of new loans to property buyers, according to the Australian Bureau of Statistics (ABS). This is the highest level in eight years. The number of loans issued to investors has increased by almost 25 percent over the past year.
First home buyers are also adding to demand for units, with support from the Bank of Mum and Dad a key factor allowing some young buyers to purchase their first homes when, historically, higher interest rates would normally dampen demand from starter buyers on strict budgets.
CoreLogic’s research director, Tim Lawless, said units had outperformed in every capital city over the past three months except Darwin and Canberra, where greater supply of medium to high–density housing meant less competition per property and a reduction in median prices over the period.
“With stretched housing affordability, lower borrowing capacity and a lift in both investor and first home buyer activity, it’s not surprising to see the unit sector outperforming for a change,” he said.
Mr Lawless explained that most cities now have a median house value that is at least 1.5 times that of apartments. Choosing apartments over houses means buyers may have more choice over how much debt they are willing to take on and could also buy in more attractive lifestyle locations.
Increasing demand for apartments is being met with ongoing restricted supply in the new apartment market. In its latest monthly market report, CoreLogic said the supply of newly built homes remained insufficient relative to population growth. ABS data shows approvals for strata-title properties have fallen 22.1 percent over the 12 months to June.
Over the three months to July 31, CoreLogic data shows apartment values grew by 1.4 percent in Sydney vs. 1.1 percent for houses. Units rose 5.8 percent in Brisbane vs. 3.4 percent for houses. In Adelaide, unit values rose 7.1 percent vs. 4.7 percent for houses. In Perth, apartment prices rose 6.4 percent vs. 6.2 percent for houses. Hobart apartment prices rose 2.2 percent while house prices fell 1.5 percent. In Melbourne, apartments outperformed houses but the median values of both fell. Unit prices fell 0.2 percent while house prices fell 1.2 percent.
Overall, the national median dwelling price lifted 0.5 percent in June, which was the 18th consecutive month of growth. However, CoreLogic noted in its report that “it is clear momentum is leaving the cycle and conditions are becoming more diverse”. The market is very strong in Perth, Brisbane and Adelaide and weak in Melbourne, Hobart and Darwin, where overall median dwelling values fell over the past three months. The pace of property price growth has also “slowed markedly” in Sydney as the number of listings for sale returns to normal levels.
Mr Lawless said supply was the key differentiating factor in the performance of Australia’s capital city markets. “The number of homes for sale in Brisbane, Adelaide and Perth is more than 30 percent below average for this time of the year, while weaker markets like Melbourne and Hobart are recording advertised supply well above average levels,” he said.
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Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.
3 min
Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.
Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.
Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.
“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.
“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”
Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.
Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.
“In the absence of stock, demand exceeds supply,” he said.
Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.
He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.
“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.
“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”
Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.
He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.
McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.
While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.
“People are looking for value for money,” she said.
She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.
“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.
The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.
“The viability of a development happens at the moment the site is bought,” he said.
He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.
While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.
“It is actually a business that requires a level of expertise,” he said.
Looking ahead, the panel agreed opportunities remained in the market despite current challenges.
Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.
McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.
Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.
“We can provide affordable housing in this country,” he said.
“But we’ve got to wrap that affordable housing with the things that people want.”
As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.
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