What You Need To Know About The Record Gap Between House And Unit Prices
While annual house price growth has generally outpaced unit price growth over the last ten years, the gap between Australia’s house and unit prices grew to a record high of 28.3% in January, according to CoreLogic.
We take a look at how it has played out here in Brisbane and what it means for property investors and tenants.
Brisbane house and unit prices are both up
Brisbane’s property market continues to go from strength to strength, with housing values (that’s houses and units combined) rising by 7.2% over the three months to February 2022. Price increases are being driven by low stock levels coupled with strong buyer demand. Total listings across Brisbane are 24.4% lower than 12 months ago and more than 40% below the previous five-year average. In contrast, the listings average across the combined capital cities is only down 3.5% year-on-year. Add to this buyer demand at its highest level in 15 years, according to property strategist Brett Warren, thanks to never-before-seen rates of interstate migration, and it’s easy to see how competition is fuelling the market.
But when you split the house market out from the unit market, what does it look like? By the end of February 2022, Brisbane house prices had risen 32.75% over the previous year, more than any other capital city. Meanwhile, unit prices had also increased, but at the softer rate of 14.37%.
What does it mean for property investors?
Because property prices are rising more quickly than rents, yields are being driven down, with CoreLogic predicting they may hit new all-time lows. Despite this, Brisbane yields are still well above those in cities like Sydney and Melbourne.
At the end of February, Brisbane’s gross rental yield for dwellings (houses and units combined) was sitting at 3.6%. For comparison, Darwin was recording the nation’s highest yields, at 6.0%, while Sydney had the lowest at 2.4%.
And when house yields are split out from unit yields? The impact of the purchase price disparity between the two is clear. House yields were 3.3% in February, while unit yields were 4.7%.
What does it mean for tenants?
While property prices have been rising, so too have rents.
CoreLogic reports a slight uplift in the pace of rental growth nationally over the first two months of 2022, which can, in part, be traced back to the fact that the beginning of the year is traditionally one of the rental market’s busiest periods. The rise in rents was propelled by the unit rental market, which was up 0.9% over February and 2.4% over the quarter, while houses were up 0.7% for the month and 2.0% for the quarter.
Here in Brisbane, house rents rose by 11.3% over the year to the end of February, the largest gain in the country, while unit rents rose by 6.5%. Following the longest-ever period of continuous house rent growth in Brisbane’s history, it’s now more expensive to rent a house here than it is in Melbourne, Adelaide or Perth. This boom in the house rental market can be traced back to increased interstate migration, particularly from families, and the COVID-induced trend for larger homes that can accommodate work, rest and play.
What can we expect next?
Now that both our domestic and international borders have reopened, demand for housing is forecast to increase even further. We can expect stronger rental demand in areas popular with foreign visitors and international students, such as inner-city precincts.
And what about the devastating floods; what impact will they have on the market? Looking back to the 2011 floods, property values in the worst-affected suburbs took between three and nine years to bounce back. But the market was very different then, and, thanks to the GFC and a tightening in monetary policy, housing values had already been trending lower since well before the floods. Given the incredible momentum behind the market prior to the current floods, experts believe the market will recover much more quickly this time around, buoyed by government spending on infrastructure and projects associated with the 2032 Olympic Games.
In the short term, we will see flood-affected sales and rental stock taken off the market, which may lead to an increase in prices for remaining properties. Meanwhile, unaffected areas may experience a surge in demand.
If you’re looking for specialist property management for your Brisbane investment property, or you’re searching for your new Brisbane rental home, we can help. Get in touch with our experienced team today.