High-density living takes off

Higher density living in dwellings such as units and townhouses is becoming more popular as available land close to city centres dries up and single dwellings prove to be too expensive.

Over the past 15 years, unit sales both nationally and for all capital cities combined increased by around 31%.

Estimated August 2011 sales transaction results confirmed that 22,407 capital city dwelling sales were executed over the month with 33,856 of these sales taking place nationally. Capital city unit sales represented 33.5% of total sales with 20.2% accounting for unit sales within markets outside of capital cities. Fifteen years ago, 28.2% of capital city home sales were for units while 18.0% of sales in non-capital city markets were for units.

To be expected, it was Australia’s best established housing markets of Sydney and Melbourne that recorded the greatest proportion of unit sales. For August 2011, sales estimates indicate that 42.8% of all dwelling sales in Sydney were for units and 33.8% were in Melbourne. Outside of these two cities, Canberra and Darwin recorded significantly greater proportions of unit sales accounting for 35.9%, and 32% of sales respectively.

The common theme among the cities which have recorded above average volumes of unit sales is that three of the four are also the most expensive capital city markets; Darwin being the exception.
Overall, the national results show that although there is significant focus on the unit market, “non houses” still account for around one-third of all dwelling sales.

One important point worth mentioning is that over the 12 months to September 2011, the change in capital city unit values (-1.1%) has outperformed that of capital city houses (-4.1%) – a trend that has been replicated over the past five years with house values increasing at an average annual rate of 4.8% and unit values increasing by a greater 5.9% for the same period.

Based on the RP Data research out today, over the past year, the proportion of unit sales to overall sales has once again started to increase, although these are well below record levels.
The reason for the recent improvement is due to affordability barriers remaining high with many buyers looking towards higher density housing options where entry prices tend to be lower.

Lower levels of affordability have resulted in a renewed focus on units as they are $45,000 more affordable than detached houses across the combined capital cities based on median selling prices over the September 2011 quarter. Dramatic improvements in home loan affordability in 2008 and 2009 saw buyers show a preference for houses rather than units.

Over the coming years, demand for higher density living will continue to grow as our cities expand.

Melbourne in particular has done a much better job at providing new higher density housing over recent years than we have seen in the other major capitals. Should other cities follow this lead, a greater supply will likely lead to improvements in housing affordability with developers having to offer competitive pricing to secure sales.

From a rental perspective, an increase in supply will also help stem rental price inflation and enable greater opportunities for those choosing to rent rather than own their own home.