Recent data shows that, across Australia, the gap between house and apartment prices is now greater than it has ever been.

In January 2024, the median house commanded a 30.4% premium on the median apartment. In Sydney, that gap is much wider at 68.4%.

What’s more, the chasm between house and apartment prices has been growing rapidly, especially since the pandemic. In March 2020, Sydney houses were just 32.9% more expensive than apartments. That means they’ve become 35.5% more expensive in the last four years, with the gap growing by 9.9% in 2023 alone.

So what’s behind the growing divide between house and apartment values? Why is Sydney’s gap bigger than other cities’? And what does it mean if you’re looking to buy or sell in Sydney’s inner east?

Why is Sydney more affected than other cities?

Sydney is Australia’s undisputed apartment capital. According to 2021 Census data, 30.7% of all dwellings in our city are flats or apartments. This compares to just 15.6% in Melbourne, 14.7% in Brisbane and just 7.6% in Perth.

In other words, Sydneysiders are roughly twice as likely to live in an apartment as people in Melbourne or Brisbane and four times more likely than someone in Perth.

Here in the inner eastern suburbs, that figure is far higher still. In Potts Point, 89.1% of all dwellings are apartments, 9.4% are semi-detached or terraces, and just 0.3% are stand-alone houses.

This ratio of houses to apartments goes a little of the way towards explaining why the difference between house and apartment prices is larger in Sydney than elsewhere.

One of the worries house owners often have when apartments get developed near them is that it will impact their property values negatively. Our experience is that nothing could be further from the truth.

When the ratio of apartments to houses increases, houses become comparatively scarcer. And few things cause prices to rise more rapidly than scarcity value.

After all, even though apartment living for life is becoming more common, many of the residents who move into apartments may want to move into a house. Many of these upsizers will want to stay local. If yours is one of the houses in that area, suddenly you have far more competition for it, not less.

Changing tastes during COVID

However, the ratio of apartments to houses is only part of the story. Equally as important is that our property priorities have changed over the past four years.

Lockdowns and restrictions during COVID-19 forced people to spend more time at home and encouraged some to rethink what they wanted from their properties.

Many decided that what they really desired was more space—particularly outdoor space, living area and extra room for a home office—and this caused the value of family homes to rise more sharply than other market segments.

This same phenomenon wasn’t restricted to houses, though. We’ve also been seeing the price of larger apartments rise comparatively faster.

Domain data shows that the value of the median three-bedroom Potts Point apartment lifted 16.7% over the previous year, compared to 10.3% for two-bedroom apartments and 9.5% for one-bedroom apartments.

Longer hold times, lack of stock

Another key reason house prices have taken off more than apartment values has been a relative lack of stock. SQM Research reveals that the split between houses and apartments on the market in Sydney’s eastern suburbs has changed dramatically over the last decade and a bit.

In February 2024, 71.7% of all properties listed for sale in Sydney’s eastern suburbs were apartments. In October 2010, only 60.5% were.

This isn’t only due to there being comparatively more apartments today – most of the apartment construction that has taken place in Sydney since 2010 has not been in the city’s east.

It’s also due to people holding onto their houses for longer. CoreLogic’s analysis shows that the median hold time for a house in Sydney rose from 5.3 years to 10 years between 2002 and 2022. The median apartment hold time rose, too, but from 4.3 years to eight years.

We’ve noticed that this is exacerbated by a lock of downsizer-appropriate properties in Sydney’s east. These buyers, who are a vital market segment, have very specific requirements, so any suitable properties are hotly contested. Those would-be downsizers who miss out, tend to stay put, meaning even fewer houses come to market.

First home buyers and investors quieter

A final factor we believe has contributed to the growing gap is that there has been comparatively less activity from first home buyers and investors over the past few years. Both groups tend to be overrepresented among Sydney’s apartment buyers.

The ABS’s lending data shows that new loan commitments to first home buyers across Australia have been falling since early 2021. Meanwhile, loan commitments from investors have been down since early 2022.

The good news for apartment values, however, is that both have rebounded lately, with investor lending up 21.7% over the past year alone.

First home buyers should take heart from the data

The growing gap between house and apartment prices might be bad news for those upsizers who want to go from an apartment to a house. However, it’s actually good news for any first home buyers who are looking for an apartment as their first home.

The reality is that, while Sydney apartments may not exactly be affordable, they do tend to represent better value than houses. According to Domain, the median one bedroom apartment price in Potts Point ($838,000), is roughly 60% of the citywide median house price ($1,414,229).

With strong government incentives such as the NSW government’s transfer duty concession and Commonwealth government’s First Home Loan Guarantee in place, we believe a foot on the ladder may be possible for more first home buyers in 2024.

Want more?

If you’re thinking of buying or selling in 2024, contact my team today.

Article by Jason Boon

In a real estate market that is the focus of Australian, and indeed worldwide attention, Jason Boon's results in the Sydney scene make him a highly significant figure within the industry. A long-term specialist in the Potts Point and inner eastern suburbs area, he is uniquely placed to leverage his skills and local knowledge as the area undergoes significant change and diversification. Jason ha…