Why first home buyers can only afford apartments

The Sydney couple, who have a baby on the way, haven’t been able to find a property in two years, but there may be a glimmer of hope.

Eric and Julia Meyer have a baby on the way and despite a “hefty” six-figure deposit they still can’t get on the property ladder.

The couple, who estimate they have paid between $80,000 to $100,000 in rent a year for the past six years while living in North Bondi, have been searching for a place to buy for the last two years.

But they have watched the “scary” increase in house prices in Sydney and have all but given up on the dream of buying a house and instead have turned to apartments.

“We have been able to save a hefty deposit but the sad thing is it’s not even able to be put into fruition at the moment,” Julia, who is eight months pregnant, told news.com.au.

“It’s a 20 per cent deposit for a range between $1.3 million and $1.5 million for an apartment and its just competitive as people aren’t listing at that price level.”

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The couple have looked at 50 places over the last two years but have missed out on five properties so far. Picture: Chris Proud

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They have looked at 50 places in the last two years, everywhere from the Waverley Council area through to the Northern Beaches and down to Wollongong, but have their hearts set on staying in the Bondi area as they have built a community there.

“We got approval for a mortgage around $1.95 million and in the Eastern suburbs you are lucky to get an absolute knock down for that money,” added Eric.

“In the perfect world we would have loved to have a house here, but the market has gone up that much we can’t afford a house at the moment.

“The scary thing is houses are being listed at a certain price and going at least $500,000 over reserve.

“I think there is a house for sale somewhere in North Bondi and it’s honestly an abandoned house with windows boarded up and it hasn’t been touched in 30 years and the guide is $3 million. There has been an influx in the market in the last 18 months and that turned the properties there unattainable to the average person.”

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The couple have built a community in the area from doctors to cafe owners. Picture: Brook Mitchell/Getty Images

Julia, who works in corporate strategy, said they have already missed out on five places and every time they lose a couple of grand with pest and buildings reports as well as solicitor’s fees.

“It’s insane when we first started looking we got gazumped on one and it was $1.1 million or $1.2 million and that was the end of 2019 and speaking to the same agent now its already at $2 million,” she said.

“There was a huge opportunity right before Covid but Covid has really accelerated people wanting to put roots down and with being a renter there is not the security there.”

The 34-year-old said they now see buying an apartment as a stepping stone to building up equity and finding their forever home, with the goal to securing a property by Christmas.

But Eric admits its been stressful, particularly with their first child due shortly.

“We have been in a bit of a limbo because the old place we were in the owners decided to move back so we found a place that is a bit temporary or short term,” he said.

“It’s great as it allows us to save even more money but I think with a baby on the way its always nice to prepare the nursery, do some painting and do a bit of nesting and we have been in a flux where it hasn’t been possible.”

They now see buying an apartment as a stepping stone to building up equity and finding their forever home. Picture: Supplied

The 32-year-old, who originally hails from the United States, said they also see an apartment in the area as a good investment as the couple plan to move overseas for a stint and rent it out or offer it up as an AirBnb.

“It’s a sound investment and the yield we would be able to generate from an apartment in the blue chip area is more reliable and secure than if we were to go for a home that’s much further out of Sydney, that’s why we shifted back into looking for an apartment,” he added.

Growing gap between house and unit prices

As first home buyers the couple may be on the right track, as apartment prices have failed to skyrocket unlike houses, new research has found.

In Sydney the gap between apartments and house prices has now ballooned by an extra 32 per cent in the last six months alone, which adds up to more than $150,000, according to data from national agency Upside Realty.

In Canberra it’s an even greater jump, with the median house now more than double the median apartment, with the gap increasing by a staggering 47 per cent in six months adding up to a gap of $163,785.

While a lot of families would love to buy a house in the current Sydney market it costs an additional $600,000 to get a house over an apartment, yet a year ago that was $400,000, said Upside Realty director of sales James Kirkland.

“The gap between units and houses has now widened in Sydney by more than $200,000 in a single year. This has been mirrored across the country,” he said.

“Covid-19 and the lockdowns have driven unprecedented desire for extra space and a backyard, so the housing market has increased at a much greater pace than units – more than we have ever seen before.”

In Sydney the gap between apartments and house prices has now ballooned. Picture: Gaye Gerard/NCA NewsWire

‘Undervalued’ apartments

Back in December the median house price in Sydney was just over $1.2 million and six months later it has skyrocketed to more than $1.4 million, according to Mr Kirkland, whereas apartments have only risen from $735,000 to $786,000 during that time.

“Historically both apartment and house prices have increased in value at the same rate,” he noted.

“The last time we saw such a significant change in the gap between the two was a decrease in the gap between December 2017 and March 2019, but still the change in that time was only $100,000 and it was over 18 months.

“We are now seeing a change in the gap more than double that, in the last six months alone. This clearly indicates that apartments are undervalued right now.”

A young family with one child would be looking at paying at least $1.2 million or more for an old house, most likely needing work across large parts of Sydney, he said.

“Yet they can get a very nice apartment in the same area for under $1 million – and they are saving $200,000-$300,000,” he said.

“Families are being lured by an extra bedroom and extra space, finding themselves moving further and further away from where they work, or their kids go to school, and where they have family and friends.

“A quality postcode will yield better results long term than moving five suburbs away from where you want to be, because that’s where you can afford a house.

“In the short term we think this gain is going to continue widening, but ultimately it’s an artificial one – we won’t be working from home forever. There’s going to be a big shift in the long run.”

Thousands of investors are also planning to offload apartments in Sydney and Melbourne in the coming months, a recent survey found, as unit values also take a dive in capital cities CoreLogic data found.

The price gaps

1. Sydney price gap between units and apartments up 32 per cent to $152,531

2. Melbourne price gap between units and apartments up 21 per cent to $77,406

3. Canberra price gap between units and apartments up 47 per cent to $163,785

4. Brisbane price gap between units and apartments up 28 per cent to $61,848