Where picking the wrong type of property could cost thousands

Home sellers in some of the neighbourhoods where properties are most likely to sell at a loss are unlikely to be affected – if they list a house rather than an apartment.

Even in many regions where the share of loss-making unit sales is as high as one in four – or even more – far fewer house sellers lose money, new figures show.

Units have been selling at a loss even in areas where houses don’t.Credit: Ben Rushton

The figures come amid a push by both state and federal governments to build more homes to address the ongoing housing affordability crisis.

Experts say house owners can feel confident that a new block of flats in their suburb is unlikely to reduce the value of their home, but also that the new phase of development is more likely to be made up of infill and medium-density than the spate of high-rise construction during the 2010s.

In Sydney, Parramatta local government area had the highest share of loss-making unit sales in the December quarter at 29.8 per cent, CoreLogic figures show, but only 1.5 per cent of houses sold at a loss.

The picture was similar in Strathfield LGA (25.1 per cent of units, no houses) and Ryde LGA (25.1 per cent of units, 2.3 per cent of houses).

Even in Melbourne, where the broader property market has been weaker over the past year, Stonnington LGA had the second-highest share of loss-making unit sales at 39 per cent, but only 9.9 per cent of houses. Yarra LGA (37.3 per cent of units, 9.6 per cent of houses) followed a similar pattern.

CoreLogic head of research Tim Lawless said the gap between unit and house price performance comes down to scarcity – as density increases, houses on blocks take on more scarcity value.

He thought boutique apartments were holding their value or increasing, but capital growth was more likely to be lower or negative for lower-quality, high-rise stock.

Lawless does not believe the perception that detached home values would fall if there was more housing density.

“For many of those markets, the actual land value in that area probably rises, and together with the land value, the value of the detached home probably rises as well,” he said.

An exception might be a detached house right in the middle of an influx of development, which would field less demand from owner occupiers. But then the house becomes valuable to a buyer who plans to develop it, he said.

He said the research shows higher supply can limit price growth and improve housing affordability, but that not everyone wants to live in compact units, and the key in future would be medium-rise, larger, owner-occupier-style apartments.

Although a record of loss-making sales did not incentivise investor buyers, he thought higher-quality developments would have better price performance.

“Going forward, we’ll see a lot more focus on medium-density, gentle densification along train lines and areas of high amenity,” he said.

Centre for Independent Studies chief economist Peter Tulip welcomed new apartment supply as a step towards solving the housing crisis.

But he said even in an area such as Strathfield, where there was an increase in apartment supply, this had little effect on house prices, given houses and units in the same suburb tend to be separate markets.

“Buyers do not regard them as close substitutes,” he said.

“Interestingly, that contradicts the fears of local residents that the new apartments will harm local amenity. ‘Location premiums’ don’t change.”

But more broadly, he thought widespread and substantial apartment supply would put subdue prices for both houses and apartments – such as in Melbourne, which has remained overall more affordable than Sydney.

Quantify Strategic Insights head of data and insights Angie Zigomanis said allowing higher density can even increase the value of a property where home owners band together and sell for a premium as a development site.

An issue with loss-making sales combined with rising construction costs could mean they affect the potential for new developments. But he pointed to the economic cycle: eventually when demand for housing catches up, rents rise, and once developers see the potential for profit, they enter the market.

Many home buyers do not see houses and apartments as interchangeable.Credit: Dion Georgopoulos

He thought the areas where new apartments have been built were desirable suburbs offering amenity and accessibility.

“There is no more supply being built in terms of housing. If anything, supply is probably reducing because a lot of houses … [are] replaced by townhouse developments, so there’s an element of exclusivity,” he said.

“They’re still different products even if they are in the same location.”