Across each major capital city the unit market has been more resilient to falling values over the past year compared with detached houses. This would seem to suggest that affordability barriers in the market are encouraging home buyers to look for more affordable housing options such as units and townhouses. This is highlighted by the fact that over the three months to May 2012, the median house price across the combined capital cities ($490,000) was $60,000 more expensive than the median unit price ($430,000).
Across each individual capital city market, the current difference between the median selling price of a house and unit is more than $55,000. In the two most expensive housing markets (Sydney and Melbourne) the difference between house and unit prices are $148,450 and $94,450 respectively. The differential between selling prices of houses and units lends further insight into the reason why the unit market has recorded lower value declines over the year than that of detached houses.
Another likely reason for the superior performance of units is that from an investment perspective rental yields are typically stronger than they are for houses. Gross rental yields for houses are lower than they are for units in each capital city market except Darwin highlighting that from an investment perspective units are often a superior option than houses.
The superior performance of units to that of detached houses has been evident over recent years. Over the past five years, capital city detached house values have risen at an average annual rate of 2.7% compared to a 4.2% increase in unit values each year. Looking back further to the past decade and 15 years you can see that the long-term performance has seen house values increase at a more rapid rate than units.
The commonly held belief is that houses appreciate in value at a more rapid rate than units due to the underlying land value however, that has simply not been the case in recent years. Importantly, unit values have outperformed houses over the past five years, a time over which capital city home values have appreciated at a much slower rate than the past ten and 15 years. The superior performance of units over recent years would tend to indicate that buyers are seeking more affordable housing options and these are largely available in the unit market as opposed to the detached housing market.
Across individual capital cities, each one except for Darwin and Canberra have recorded a superior value change performance for units as opposed to houses over the past 12 months. The same situation is prevalent across the same cities over the past five years which really highlights once again that buyers in the larger capital city markets are looking for more affordable housing options resulting in a superior performance to that of detached houses in recent years.
Across each capital city except for Darwin and Canberra, current unit values have experienced a smaller decline from the market peak than housevalues. Across the combined capital cities, unit values have fallen by just -2.8% from the market peak compared to an -8.1% fall in house values.
Overall the data highlights that the popularity of units is increasing and they have outperformed houses in terms of value growth over recent years. There are a number of reasons for the increasing popularity of units namely: they are generally more affordable, there is a growing acceptance of units as a viable alternative to living in a detached house, units typically provide better rental yields and are they are often located in more strategic locations with relation to surrounding amenity and transport infrastructure. We would expect that the popularity of unit living will continue to grow over the coming years as buyers are increasingly conscious of housing location and cost.