The growing gap in the Melbourne market

In recent times the market for houses in Melbourne has outperformed, in terms of value growth, the unit market.

In many respects this is due to increased supply and it also signifies a broader structural change in the market.

According to the latest RP Data Rismark Home Value Index April results, the value of houses grew by 12.2% over the last year and by 5.4% over the first four months of this year. In comparison, the value of units has grown by 6.8% over the last year and by 0.9% this year.

A review of data over the medium term shows that houses have consistently outperformed units in terms of value growth over time.

In April the value of a unit was 70% that of a house. A year ago unit values were 74% that of houses and five years ago it was 75%. Interestingly when the index commenced in 1995 unit values were 88% of a house. Over that time unit sales as a proportion of all sales in Melbourne have risen from 28% to 34%.

Houses have recorded stronger levels of value growth than units and as a result are becoming comparatively more expensive than units.

The change in values and sales numbers is a reflection of a broad structural change in the Melbourne housing market. Over the past decade the number of medium and high density dwellings has grown as a consequence of planning policies, demand from buyers and affordability issues.

As Melbourne continues to grow and requires more dwellings, the most efficient way to supply these new dwellings is through higher density homes. 

The majority of dwelling approvals in Melbourne are now for units as opposed to detached houses and state governments’ over the last decade have made it clear that in order to cater to the city’s growing population there will be more higher density housing.