John McGrath – Record High Price Gap Between Houses & Apartments | McGrath
John McGrath – Record High Price Gap Between Houses & Apartments

John McGrath – Record High Price Gap Between Houses & Apartments

John McGrath
John McGrath
23/08/2021 | 3 MIN READ

One of the biggest pandemic trends has been far greater demand for houses over apartments. This is because there are many upgrading families in the market, as well as plenty of first home buyers leveraging vast government incentives to stretch their budgets beyond apartments to houses.


This has led to outstanding price growth. In the year to July 31, house prices in the East Coast capital cities have risen by 23.4% in Canberra, 23% in Sydney, 17.7% in Brisbane and 12.3% in Melbourne, according to latest CoreLogic data.


Simultaneously, apartment prices have also grown but not as much. East Coast capital city apartment prices have risen by 10% in Canberra, 7.6% in Sydney, 7% in Brisbane and 5.9% in Melbourne.


As a result, the price gap between houses and apartments/townhouses has been widening and is actually now at a record high of 30% nationally, according to a new CoreLogic report.


The gap is even greater in Sydney (54.2%), Melbourne (52.4%) and Brisbane (58.2%) and there’s a staggering gap in Canberra (74.8%).


There are a few reasons for these widening price gaps:

  • Faster house price growth, as shown above
  • COVID-19 trends have not only created more demand for houses, they have also reduced demand for apartments because people are leaving inner city areas
  • Ceased migration and lower investor activity in 2020 also reduced demand for apartments
  • More apartments are built than houses, so supply of new apartment stock is always higher


The house market remains very strong but price growth has been slowing at a national level since March and that’s because affordability is starting to bite.


So, we’re now meeting young people at opens who tell us they’ve given up on a house and have switched their search to townhouses and apartments. Some are continuing to look in the same area while others are broadening their search to better suburbs because their budget allows it.


The good news is that the widening price gap means if you switch your search, you’ll be able to afford the best apartment you can find because the budgetary step down is huge – at least 50%.


Consider this. CoreLogic data tells us that the price gap on the East Coast is 50%-plus. If you’re looking for a house with a $1.5 million budget and keep missing out, then switching your search means you’ll have a $1.5 million budget when the average apartment only costs $750,000.


Of course, you wouldn’t spend your house budget on an apartment. Within suburbs, you’d be lucky to find an apartment worth the same money as a house. Switching your search means most likely you’ll be buying a cheaper property, so you’ll have less debt, but you’ll also be able to afford high quality.


My key piece of advice to all buyers, and especially budget buyers because they’re more likely to have to make compromises, is to buy high quality. That means buying above the local median price.


Instead of buying the worst house in the best suburb, buy the best house (or semi or terrace) in the second best suburb. If that fails, then start thinking about apartments but always buy quality.

This is especially important with apartments because the market is much larger, so you have to prioritise uniqueness and desirability to ensure above average capital growth for your property.


Stay away from ‘typical’ apartments. Look for bigger floor plans with a good aspect and some unique features, such as a great outlook, a garden area on title or an extra car space.


Apartments and townhouses are not the ‘poor cousins’ of houses. In fact, most modern developments offer amazing garden apartments that give you a house-like lifestyle at a lower cost.


You’re more likely to find these in modern developments. This is because it’s only been in the past two decades that young families have adopted apartment living and baby boomers have begun downsizing, and both these groups want more than the typical 70 sqm apartment with a balcony.


They want spacious interiors, a decent sized terrace for outdoor dining and ideally, their own patch of land with some garden and lawn space for the kids. Developers are catering for this more and more, so you might be surprised at the quality of home you can buy in the apartment market today.


Imagine going from the stress and strain of constantly missing out on houses to having an array of high quality apartment and townhouse options that are well within your budget? That’s the freedom the price gap provides.


If you’re struggling to buy a house in today’s strong market, it’s better to make the switch sooner and take advantage of the price gap before every other buyer like you decides to do the same.

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This article originally appeared in The Real Estate Conversation


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