Demand for apartments is set to rise amid worsening affordability, according to Domain. Dion Georgopoulos
Demand for units is far outpacing supply across Sydney, potentially igniting a healthy increase in prices in the coming years amid worsening housing affordability, Domain’s new report shows.
While houses are still the most coveted property type, Sydney buyers are now more willing to compromise on what they buy to stay in their desired locations, according to Nicola Powell, Domain’s chief of research and economics.
In the past five years, the share of unit searches soared by 94.3 per cent, while new listings only lifted by 7.5 per cent.
“I think with the extreme change in affordability challenge that we’ve seen over the last few years as a result of rising prices, along with the cash rate staying higher for longer, and cost-of-living crisis, are all impacting borrowing capacity. I think it’s shifting what buyers are looking at and where,” Dr Powell said.
“Buyers are now considering multiple options when they are looking for a home and if the property isn’t within their price point, they shift, and they’re more likely to shift on property type than on location.”
In the past five years, house prices surged by 53.6 per cent, while units only increased by 15.1 per cent, Domain data shows.
The growing portion of the ageing population is also driving demand for medium to higher density housing, according to the report.
The latest census shows the proportion of people aged over 65 living in apartments was 19 per cent in Sydney.
This cohort is projected to double in the next 40 years, intensifying the demand for low-maintenance, lifestyle-focused housing options that cater to downsizers.
Sydney developer Luke Berry, founder of Thirdi Group, said the ongoing supply crunch and rising demand would fuel sharp rises in apartment prices in the coming year.
“Very few apartment projects are going ahead at the moment because it’s very hard to make them stack up due to high costs, so there’s going to be bigger supply issues in the next couple of years,” he said.
“I think as soon as interest rates start to fall, maybe middle of next year, there’s going to be renewed interest in new apartments and there’s not going to be enough supply.”
Rich Harvey, chief executive of Sydney-based buyer’s agency Propertybuyer, said demand for units would continue to rise until affordability improved.
“I think the longer the interest rates stay higher, the more that affordability constraint will drive people back to apartment living,” he said.
“I think that the affordability factor is going to really play out over the next 10 years, particularly for younger generations. Apartments are all they will be able to afford when they have lower deposits to get into the market.”
Demand for townhouses is also rising, accounting for 28.4 per cent of all searches, which is higher than the 25.4 per cent unit searches, but lower than the 77.3 per cent house searches.
However, townhouses represent a relatively small share of new listings in Sydney, with an average of just 5.8 per cent of all listings, the smallest of all property types.
Townhouse buyers are typically more willing to pay well above the listed price according to Domain. AVJennings
Houses accounted for 56 per cent of all listings, while units made up 38.1 per cent of all stock.
Unit searches were most concentrated in inner-city suburbs, reflecting the higher demand closer to the city, and the lasting appeal of urban living, the report said.
Thomas McGlynn, chief executive of BresicWhitney real estate agency, said the recent softness in unit prices had attracted a growing number of first home buyers and existing home owners looking to buy a city pad.
“There have been some great buying opportunities in the unit market and I feel that has drawn the first home buyer market back, hoping that if they buy now, they might see some good capital gains returns when interest rates start coming down,” he said.
“Investors are still scarce but some existing home owners who live away from the CBD are starting to trickle in, and snapping up inner-city apartments for them to use as a base.”
‘An appealing option’
On the other hand, townhouses attract both inner-city and suburban buyers by offering a mix of affordability and premium choices, says Domain’s Dr Powell.
“Townhouses serve as a middle ground between houses and units, making them an appealing option to a broad buyer pool,” she said. “While Australians generally prefer houses, townhouses present a unique opportunity by appealing to buyers across various locations without the usual geographic bias, making them a strong alternative.”
Searched prices for townhouses often exceeds the listed prices, with Campbelltown posting the largest gap of $120,000, or 16 per cent.
Townhouse buyers in Blacktown, Auburn, Penrith and St Marys are also willing to pay $100,000 than the listed price or the equivalent of more than 10 per cent above the asking price.
By contrast, listing price exceeded buyers’ budget by $590,000 across Ku-ring-gai and by $250,000 in the Chatswood-Lane Cove area.
Unit buyers are also more likely to have a higher search price compared to listed price.
The widest gap between search and listed price is in the outer regions where supply is more limited.
Mount Druitt posted the largest gap, with search prices around 27 per cent higher than listed prices, followed by Wyong with 13.7 per cent difference and Campbelltown with 16.7 per cent.
By contrast, premium markets such as Manly, Canada Bay, the northern parts of the eastern suburbs, North Sydney-Mosman and Pittwater command as much as $400,000 premium over the search prices.
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