Houses outperform units in capitals

Detached houses have now overtaken units as the best performers across the capital city property markets, according to new data.

RP Data’s Property Pulse reveals that across Australia’s combined capital cities over the 12 months to October, houses grew in value by 8.2 per cent as opposed to units, which grew in value by 5.9 per cent.

There’s a commonly held view that house values appreciate at a more rapid pace than unit values due to the underlying land value. However, this has not necessarily been the case throughout most of the past five years.

The results show that capital city values over the past five years to November 2013 increased at an average annual rate of 3.7 per cent compared to growth of 4.0 per cent per annum across the unit market. If we look at the two previous five-year periods, we see that growth in house values outstripped unit values.

Between October 1998 and October 2003, house values rose by 15.0 per cent each year compared to unit value growth of 11.1 per cent.

Between October 2003 and October 2008, house values increased at an average annual rate of 4.9 per cent compared to 3.6 per cent for units.

It will be interesting to see if the higher level of growth reverts to units in Sydney and Melbourne over the coming year as selling prices rise and affordability becomes more challenging for detached housing.

Once we start to see a rise in interest rates, we may also see the dynamics shift.

Although a majority of dwelling approvals were for houses (42.4 per cent) over the 12 months to September 2013, the proportion of unit approvals is growing. In 1993, 29.6 per cent of dwelling approvals were for units and by 2012, this had increased to 38.9 per cent.

Dwelling approvals data over the past 12 months across the capital cities show that higher density living in the major capital cities would be a central feature in the future.

More than 50 per cent of all approvals in Sydney, Melbourne, Brisbane, Darwin and Canberra were for units as opposed to houses over the 12 months to September 2013.

That while many Australians aspired to owning a house rather than a unit, in reality it was becoming more and more difficult.

Added to this is that affordable housing tends to be quite a distance from the CBD area. As a result, we are seeing a rising prevalence of higher density construction in our major capital cities, particularly within inner-city areas.

Current market conditions may lead to stronger demand from both investors and tenants, and subsequent stronger levels of value growth for units as opposed to houses over the coming years.


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