The compromise that can save Melbourne home buyers $124,000

Melbourne buyers looking to snag a house big enough to raise a family will pay a premium over house hunters happy to compromise on space, new figures reveal.

The median price for a four-bedroom house in Melbourne was $900,000 in the March quarter, Domain data shows, a $124,325 step up from the median of $775,675 for a three-bedroom house.

Domain chief of research and economics Dr Nicola Powell said there was more competition for larger homes, which was driving up prices.

“We’ve got the higher-priced segment of houses performing better,” she said. “When looking at Melbourne at a macro level, we’ve seen a turning point based on the higher end of the market.”

The steps between units were larger, though prices for smaller homes were more affordable and accessible to first home buyers, Powell said. The median for a one-bedroom apartment was $360,000 and two beds cost $585,000, a gap of $225,000.

“If you were a first home buyer you would rather push yourself and buy a two-bed apartment [over a one-bed] to get something that will suit yourself and your family for longer,” she said. “When you think from a first home buyer’s perspective, a two-bed unit will get you into a much more central location … but for $100,000 extra you can get a block of land and a freestanding house.”

Elizabeth Paone and Blake Toseland are trying to buy their first home, and are hoping for a three- to four-bedroom house in Melbourne’s western suburbs. Credit: Paul Jeffers

First home hopefuls Elizabeth Paone, 24, and Blake Toseland, 23, have been looking to buy a house for about four months in Hoppers Crossing and Werribee.

They were hoping to find a three- to four-bedroom house with a backyard to allow space for their two dogs and to accommodate a potential future family. They have applied for the First Home Guarantee, a federal government program that allows purchases with a deposit as low as 5 per cent.

Paone, who works for a government agency, said if they were to buy focused only on the present, an apartment would be perfect — but not for the medium term.

“We’re trying to plan for our future in terms of, something that is going to work for us right now might not work for us in two, three years down the track,” Elizabeth said.

The couple want to buy a home that will suit their future needs. Credit: Paul Jeffers

“In a couple of years we might want to have kids so we don’t exactly want to buy a house, and it’s suitable for us for only two years, and then we need to upsize. We want something that’s going to suit us for our changing needs going forward.”

Toseland, who works in transport and logistics, added: “We’d much rather have a house just because townhouses and apartments, they don’t serve us — they might be ok for right now, a year later we’re moving out.”

Their mortgage broker, Wheatley Finance director Andrew Wheatley, said first home buyers wanted to buy bigger homes, but were often held back by high prices.

“Better properties cost more money and most people want a better property,” he said. “When I’m talking to people the issue is they just can’t afford it.

“People aren’t coming to me saying my dream is to live in an apartment, that’s what they can afford … most people are looking to have a family so they want that bigger house.”

Wheatley said it could be better in the long run to buy a larger home first, when possible.

“The quicker you can get to a property that will be your 15 or 10-year property the better because if you change properties it’s going to cost you money every time to do it,” he said. “The property you would get in six-or-so-years’ time, you’ll be paying today’s prices … and you might end up [with more equity].

“But that’s all on the assumption that you’re comfortable with the repayments and can find the extra deposit … it’s not worth it having a better property if you’re broke all the time and miserable.”

The Property Bureau buyers’ agent Alastair Mairs said home buyers could find a home that suited their aspirations for a family, but often needed to curb their expectations in other areas.

“The first thing I talk to clients about when anyone buys a home is price … and the next thing is people have to come to terms with is: are they going to prioritise the size or the location?” he said. “A lot of the time the first thing they drop is a bedroom or a bathroom, or then they move into the next suburb out.

“As far as home buyers go, it’s personal preference. You’re the ones who are going to live there every day and sit in 10 to 15 minutes of extra traffic each day, or live there if it’s too small.”