Melbourne property you should’ve bought years ago,
Melbourne’s median house price has increased by more than two-thirds over the past decade. This rise has occurred as demand to live in the city surpasses the available land supply.
However, unit prices have not experienced the same level of growth. In fact, they have risen by less than half as much, failing to adhere to the belief that property prices double every ten years.
According to the latest Domain House Price Report released on Tuesday, Melbourne house prices rose by 67.7 percent. This brings the median price to $1,024,000 for the ten years ending in September 2024.
Just a decade ago, the typical Melbourne house was priced at around $610,000. In contrast, the average unit cost under $435,000 at that time.
Since then, unit prices have increased by 31.7 percent, now reaching a median of $572,000. This disparity highlights differing trends in the property market.
Domain’s chief of research and economics, Nicola Powell, noted that Melbourne has effectively addressed its housing undersupply. This success stands in contrast to cities like Sydney, which has struggled to manage its housing demands.
Powell emphasized that Melbourne has been much better at increasing housing supply. Both sprawling developments and high-rise buildings have contributed to this growth.
As a result, Melbourne has provided homes that align with its population growth. This achievement is relatively more successful than what Sydney has been able to accomplish in recent years.
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The last decade saw a significant boom in unit building, followed by a tightening of bank lending for investors. When the pandemic began, many Melburnians sought detached houses for extra space to work from home.
Nicola Powell stated, “Generally speaking, houses experience greater growth rates over the long term.” This is largely because the land itself appreciates in value, while the house may depreciate over time.
In contrast, a unit or apartment does not see the same rate of price growth. Powell also pointed out that property prices do not always double in a decade.
The slower growth in unit prices complicates the ability for first-time buyers to upsize. However, this situation also leads to better affordability for entry-level properties.
Moreover, not all units see the same rate of growth. Investor-oriented apartments do not necessarily appreciate at the same rate as heritage units.
Powell explained, “It’s almost like starting again – you’ve bought your first home, you’ve purchased a unit.” The leap to a house becomes significantly more challenging.
She emphasized that comparing capital growth in units with the gains seen by Boomers over decades is “absolutely inferior.”
When property prices decline, it benefits those trying to enter the property market. Nevertheless, attention needs to be given to how we create and build housing.
Powell called for a broader range of affordable developments, such as terraces and townhomes.
PEXA chief economist Julie Toth concurred that the value of land has risen faster than the price of the structures on it.
“Land is a fixed commodity; it’s finite,” she noted. As demand for land increases, prices also rise because we cannot simply create more land.
Instead, we can add more density to existing land. Toth acknowledged that while some areas and time frames have seen property values double in a decade, this trend is not consistent.
In fact, some Melbourne apartments have lost value over the past ten years. Toth pointed out that Victoria has been more successful in supplying new housing, particularly high-density options, compared to other major cities.
Interestingly, Melbourne experienced the largest population outflow during the lockdown years. Conversely, lower capital growth has led to better housing affordability.
Ultimately, Toth stated, “We want a significant increase in supply and better affordability.” This reality implies that we may need to accept slower and smaller price increases.
“If we want better affordability, we cannot simultaneously seek capital growth from housing.”
Alastair Mairs, a buyers’ agent from The Property Bureau, noted that an oversupply of unsuitable units has led to varied growth rates between houses and apartments.
He explained that issues like flammable cladding, negative sentiment, and general aversion to apartment living have contributed to this trend.
Mairs stated, “They’re scared of the fact that there is no growth.”
Furthermore, he mentioned concerns over cladding issues and the increased choices available in the housing market.
He does not recommend his clients purchase recently built apartments because their prices often decline.
“The brand new ones, those people are really hurting now,” he explained.
For instance, he highlighted that a $600,000 apartment bought ten years ago without stamp duty is now worth only $550,000.
This decline in value significantly hinders financial progress, affecting both current buyers and future generations.
However, Mairs suggested that it is still possible to find an apartment that could appreciate in value.
He emphasized the importance of having non-negotiable features like car spaces and outdoor areas.
Moreover, he advocated for apartments that are spacious inside and have solid floors.
Mairs recommended low-rise buildings without amenities like gyms or rarely used outdoor gardens.
Finally, he noted the necessity of having large rooms and ample storage to ensure long-term satisfaction.
