Rising Land Scarcity Drives Widening Price Gap Between Homes and Apartments

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Australians are scrapping over the last “patches of dirt” left in the inner cities as a chronic undersupply of homes pushes buyers to their limits.

Fresh data from online listings platform Domain reveals a yawning gap between what buyers can afford to pay for freestanding homes and what is available on the market.

In Sydney, Melbourne and Brisbane, buyer searches for houses are $300,000 cheaper than the median listing prices within 10km of the city centre, Domain found in a report released on Wednesday.

“For houses, it really does show that that inner ring is pretty much unattainable for most buyers that are searching in that area,” Domain chief economist Nicola Powell said.

The landscape of the housing market in Australia is shifting, with notable variances in price expectations depending on location. This trend is particularly pronounced in Sydney, where the cost of properties remains significantly higher than what buyers are seeking, with listings in the middle-ring suburbs priced at $150,000 above buyer searches.

In contrast, Melbourne’s housing market presents a different picture. Here, the disparity between listing prices and buyer expectations is less stark. In middle-ring suburbs, houses are listed at $100,000 below what buyers are searching for, while properties more than 25 kilometers from the city center are priced $50,000 lower than the average search figure.

The concept of the traditional “Australian dream” seems to be evolving. According to market observers, the ideal home may no longer include a spacious backyard with a Hills Hoist clothesline. Instead, homebuyers are increasingly prioritizing features like a sunny balcony.

Emma Bloom, a buyers’ advocate with real estate agency Morrell and Koren in Melbourne, said freestanding houses would always have higher potential for capital growth.

“Freestanding houses are the best investment because God’s not making any more land, so everyone wants their little patch of dirt,” she said.

But as supply dwindles and demand keeps rising, a well-located block of land will become unattainable for most.

As property expert Clarke noted, the choices facing buyers are becoming more challenging. “In both scenarios, it’s a bitter pill to swallow. You’re sacrificing a house for location or location for a house,” she explained, highlighting the difficult trade-offs buyers must navigate in today’s market.

The premium for a house over a unit across the capital cities grew to a record high of $363,000 in October, or 49.9 per cent, according to property data firm Cotality.

It’s a substantial increase from five years ago, when houses were just 20 per cent more expensive than units.

Sydney-based buyers’ agent Chris Clarke says the big burst in prices post-COVID was the “straw that broke the camel’s back” for young people hoping to buy a house in the inner city.

While some buyers moved further afield in search of a patch of land to call their own, others preferred to give up their aspiration for a freestanding home to stay closer to friends, family, jobs and amenities.

“In both scenarios, it’s a bitter pill to swallow. You’re sacrificing a house for location or location for a house,” Clarke said.

Unit listings were below or in line with buyer searches throughout the urban gradient in all cities, with the exception of Sydney’s inner ring.

But inner-city apartments were still much more expensive than the cost to build because of restrictive zoning restrictions, Justin Simon, founder of pro-development group Sydney YIMBY said.