Why units are becoming a better bet than detached houses

The May 2012 results of the RP Data-Rismark Home Value Index showed that capital city house values fell by 1.8% over the month compared to a 1.0% increase in unit value.

The trend has been evident for some time and although unit values have fallen by 1.5% over the past 12 months, detached houses have recorded much larger value falls of 5.8%.

Across each major capital city, the unit market has been more resilient to falling values over the past year compared with detached houses. This would seem to suggest that affordability barriers in the market are encouraging home buyers to look for more affordable housing options such as units and townhouses. This is highlighted by the fact that over the three months to May 2012, the median house price across the combined capital cities ($490,000) was $60,000 more expensive than the median unit price ($430,000).

Across each individual capital city market, the current difference between the median selling price of a house and unit is more than $55,000. In the two most expensive housing markets (Sydney and Melbourne), the difference between house and unit prices are $148,450 and $94,450 respectively. The differential between selling prices of houses and units lends further insight into the reason why the unit market has recorded lower value declines over the year than that of detached houses.

Another likely reason for the superior performance of units is that, from an investment perspective, rental yields are typically stronger than they are for houses. Gross rental yields for houses are lower than they are for units in each capital city market except Darwin, highlighting that from an investment perspective units are often a superior option to houses.

The superior performance of units to that of detached houses has been evident over recent years. Over the past five years, capital city detached house values have risen at an average annual rate of 2.7% compared to a 4.2% increase in unit values each year. Looking back further to the past decade and 15 years, you can see that the long-term performance has seen house values increase at a more rapid rate than units.