Rate hikes force Melbourne buyers into $382,000 property pivot

4 days ago 19

Melbourne apartment rents are rising faster than house rents in 114 suburbs, as a $382,000 price gap pushes more buyers towards units and townhouses.

Melbourne’s apartments, units and townhouses, long treated as the cheaper Plan B for buyers priced out of houses could be the surprise winners of rising rates and government tax moves.

A $382,000 gap between the city’s houses and its apartments has the latter expected to catch the eye of increasingly budget-conscious buyers into the future.

Nuestar and Hotspotting analysis of PropTrack data also shows apartment rents are rising faster than house rents in 114 suburbs across Greater Melbourne, the strongest result of any capital city market.
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Sydney followed with 104 suburbs, ahead of Brisbane with 69 and Perth with 37.

The shift comes as Melbourne’s median apartment price sits at $633,000, compared with $1.015m for houses, leaving a 46 per cent price gap between apartments and houses at a time when a range of factors are reshaping what buyers can afford.

Melbourne apartment rents rose 4.9 per cent over the year, compared with 4 per cent for houses.

Caulfield South and Briar Hill led Victoria’s apartment rent growth, each up 15 per cent over the year, followed by Patterson Lakes and Mulgrave at 14 per cent.

Meanwhile, student-accommodation-friendly Carlton recorded Greater Melbourne’s strongest apartment yield at 6.8 per cent.

Hotspotting founder Terry Ryder said apartments, units and townhouses were becoming harder for buyers and investors to ignore as rents and returns strengthened.

Hotspotting founder Terry Ryder said apartments, units and townhouses were no longer being chosen only because houses were too expensive.

“It’s easier to achieve a really excellent location and an affordable price with apartments than it is with houses,” Mr Ryder said.

“Developers tend to build them in proximity to shops and schools and public transport.

“So more people can get a good location at a relatively affordable price.”

Older, low-rise apartments in strong locations are being seen as a smarter first step for buyers priced out of freestanding houses.

The property pundit said the long-held view apartments were inferior investments reflected how the market had behaved historically, but was becoming outdated.

“We are now seeing attached dwellings competing with houses on capital growth increasingly because there are more and more cohorts opting for attached dwellings,” Mr Ryder said.

He added that apartments were also becoming more attractive to investors because they were cheaper to buy and often delivered stronger rental returns.

Real Estate Institute of Australia president Jacob Caine - for herald sun real estate

Real Estate Institute of Australia president Jacob Caine said affordability and lifestyle were pushing more buyers to consider apartments, units and townhouses.

Real Estate Institute of Australia president Jacob Caine said the shift came down to a mix of affordability and lifestyle.

Mr Caine said higher interest rates and cost-of-living pressures had stretched household budgets, forcing many to reconsider what sort of home they could afford.

“Buyers who may have originally been hoping for, or were in the market for, a freestanding home have had to seek out alternatives,” Mr Caine said.

“That is where apartments, units and townhouses have become a much more realistic and attractive option for a lot of people.”

Melbourne’s median apartment price is $633,000, compared with $1.015m for houses, leaving a $382,000 gap between the two.

But he said smaller homes were not always a reluctant compromise.

“For some buyers, being able to live in a suburb they love, be close to work, restaurants, night-life, schools, transport and community is more important than having a larger home further away,” Mr Caine said.

He noted Melbourne was also attracting interstate investors, with comparable properties in Sydney, Perth and Brisbane often six figures more expensive without significantly higher rents — leaving the Victorian capital in a position to offer good value.

Zara Lend director Stephanie Jordan said many young buyers were resetting their expectations as borrowing limits pushed houses further out of reach.

Zara Lend director Stephanie Jordan said borrowing capacity was forcing many young buyers to reset their expectations before they started.

Ms Jordan said most solo buyers were finding their budget would only stretch to a unit.

“That is where the market has moved for a lot of first-home buyers.”

She said many buyers were choosing smaller homes in areas they wanted to live in, rather than stretching for houses further out.

Carlton recorded Greater Melbourne’s strongest apartment yield at 6.8 per cent, as investors looked for lower buy-in prices and stronger rental returns. Picture: NewsWire / Andrew Henshaw

But Ms Jordan warned buyers not to treat every unit or apartment as a smart purchase.

She said older-style, low-rise, solid brick apartments or units in good locations were often a better first step than high-rise apartments with high owners corporation fees and lots of similar stock.

“But if it is an older-style, low-rise, solid brick unit or apartment in a good location, then yes, absolutely,” she said.