Apartments beat houses for price growth in October quarter

The report observed that capital city unit prices increased by 0.9 per cent over the three months to October 2024, narrowly exceeding the 0.8 per cent rise in house prices over the same period, and suggesting a growing preference among buyers and inventors for units as an affordable entry point into the market.

Examining the factors behind this changing buyer sentiment, recent modelling from the Australian National University (ANU) and CoreLogic estimated that Australia’s latest gross median household income is currently $101,000 per year, up 2.8 per cent from $98,500 in 2023.

The report noted that this limited growth has lagged significantly behind the 8.5 per cent rise in the median dwelling value, and the 9.6 per cent increase in median rent over the same period, underscoring the widening affordability gap. Those looking to buy have subsequently trained their sights on more “affordable” parts of the market and re-evaluated their needs, pushing attention onto sectors such as apartments, which have historically seen lower levels of price growth compared to houses.

Even so, buyers’ bottom lines are increasingly strained. According to the report, the median dwelling value to income ratio has risen to 8.0 over the year, up significantly from the previous 20-year average of 6.7 and matching the record highs set in early 2022.

The report noted that the median income household now requires 10.6 years to save for a 20 per cent deposit on a median priced dwelling, with just over half (50.6 per cent) of a median household income going towards servicing a new home loan, and a record high 33 per cent needed to cover the median rent.

CoreLogic head of research and author, Eliza Owen, highlighted the “extreme” median value to income metrics, in stating that “people are probably finding other means to get into the market” such as purchasing more affordable properties or opting for lower deposit loans to secure a mortgage more quickly.

“In reality, the median income household might buy something lower value than the median dwelling, and buyers in the market may be less leveraged and have relatively high income and wealth,” Owen said.

Dwelling values soar across the smaller capitals

The report stated that dwelling values have increased by over 65 per cent across Perth, Adelaide and Brisbane between March 2020 and October 2024, far outpacing the growth observed in Sydney (29.1 per cent), Hobart (27.7 per cent) and Melbourne (9.9 per cent).

Across the capital cities, Sydney has remained the least affordable destination, which the report attributed to the city’s already high dwelling values prior to the start of the pandemic in March 2020. However, Adelaide has reported the most significant decline in housing affordability since then, with its median dwelling value to income ratio rising from 5.9 to 8.9.

Through this growth, Adelaide was observed to be the second-least affordable market to purchase in, with 56.2 per cent of income needed to service a new mortgage – requiring almost 12 years to save a 20 per cent deposit – while also being the least affordable rental market, with 34.6 per cent needed to cover median rent.

On the other side of the spectrum, dwelling values in Hobart were observed to have improved over the year, currently registering 11.9 per cent lower than the city’s record high in March 2022, and easing the median dwelling value to income ratio across Hobart from 9 to 7.3.

Melbourne’s dwelling values fell for seven consecutive months over the year, dropping 5.1 per cent from the peak in March 2022, making it the sixth-least expensive capital city to live in, with a median dwelling value just under $780,000.

Weighing in on these findings, Owens emphasised that the “report highlights how squeezed even relatively high-income households are becoming at the national level”.

“There are some pockets like Hobart and Melbourne where the market is becoming more affordable, but it’s unclear whether that can last. Part of the nature of the property cycle is that once values fall by a certain amount, sellers and developers cannot add to supply, and values find a floor,” she said.

Future outlook for price growth

Reflecting on buyer sentiment over the year, ANZ economist, Madeline Dunk, noted that the bank has “seen demand for housing soften in recent months, with high interest rates, cost of living pressures and elevated home values deterring buyer competition”, adding that “in some markets, this has contributed to value falls”.

Nevertheless, the report emphasised that cyclical downturns typically do not result in long-term improvements in housing affordability as declines eventually draw in new buyers which, without a substantial increase in housing supply, end up driving values higher.

Looking into 2025, Dunk stated that housing affordability may “slightly improve from a mortgage payment perspective as the cash rate moves lower”, and could reduce the national metric of income required for a new home loan.

“ANZ Research expects the RBA (Reserve Bank of Australia) to begin easing in February. We see just 75 bp (basis points) of easing in total, taking the cash rate to 3.6 per cent by the end of 2025,” Dunk said.