Rapid price growth for affordable properties

Scott Kuru November 18, 2024 4 min read

Image by Justin McManus/AFR

KEY POINTS

Affordable housing has grown strongly in price in most areas of Australia over the past five years
Entry-level home prices are key to housing affordability because they are the price range where first-home buyers typically enter the market
This affordable segment of the market is usually also targeted by property investors

Georgia Allan is a demographer and population expert who works on the housing team at Informed Decisions or id, a consultancy that works with local councils in Australia and New Zealand to help them plan for future growth.

While she says the media is full of stories about property prices, “the vast majority of these articles focus on the median price – the 50th percentile of the market.

“This means that 50% of housing prices are lower than this figure, and 50% are higher in cost.”

However, Ms Allan says “understanding entry-level house prices is crucial for policymakers, as well as individuals.”

She points out that the current housing crisis “is unlikely to resolve if those who have never owned a home are unable to enter the market.”

The 25th percentile

A good gauge of entry-level prices in a market is the so-called 25th percentile.

At that point, 25% of property sales are under that price, and 75% are higher.

“It's generally seen to be the price point at which first-home buyers enter the market, which is why it is so important to understand in the context of housing affordability,” id’s Georgia Allan says.

Using figures from REA Group’s PropTrack, Ms Allan examined just under five years of data (between September 2019 and June 2024) to see how the prices of entry-level houses had performed in Australia’s capital cities.

“The headline of this data update is that the entry-level house price in Greater Sydney has exceeded $1 million for the first time,” she says.

“This represents a growth of 5.9% since June 2023.

“However, Greater Perth has experienced the most significant growth over the past 12 months of 34%.

“There are also two capital cities, Melbourne and Hobart, that are bucking this trend, with entry-level prices stabilising or decreasing.”

Over the longer term, the data shows that house prices at the 25th percentile have grown in all capital cities over the past five years.

Adelaide leads the way with 81% growth, followed closely by Perth with 77% and Brisbane with 74%.

Sydney is next with 53% growth, Hobart with 51%, while Canberra chalked up 47%.

Melbourne, with 21% price growth at the 25th percentile, emerges as the city where affordability for first-home buyers and those targeting cheaper residential property has deteriorated the least over the last 5 years.

This is important when you consider that median wage growth has only increased 15% in Australia in that time.

Units

With affordability an increasing problem, particularly in the capital cities, Georgia Allan says, “Units are often touted as the answer”.

She says the PropTrack data shows that “in general, entry-level unit prices are also rising across the country.

“In Greater Brisbane, Adelaide and Perth, prices have increased by more than 15% in the past year.

“Entry-level unit prices were fairly stable in Greater Melbourne and decreased slightly in Greater Sydney.”

Regional Australia

id’s research found that in regional areas of Australia, entry-level house prices are also rising.

Coinciding with the mining boom, the greatest increase was in Regional WA, where houses at the 25th percentile increased 17.5%, from $315,000 to $370,000 between June 2023 and June 2024.

The entry-level unit market is experiencing similar increases, with prices in Regional Queensland increasing 13% in the same period.

id’s Georgia Allan says even these more specific figures for entry level properties don’t tell the whole story.

She points to the City of Townsville local government area in north Queensland.

“As mentioned…Queensland has experienced significant growth in entry-level prices over the past 12 months,” she says.

“However, the growth in Townsville has been of a greater magnitude.

“Entry-level prices for Townsville have risen 26% in the past 12 months, double the growth rate seen across Regional Queensland.

“What do these trends mean for local affordability?” she asks.

“In the City of Townsville, we can see that entry-level houses are now higher than what the average household in Townsville can afford.

Townsville

“Rising entry-level prices pose significant challenges for individuals and communities alike,” Georgia Allan says.

“As housing becomes increasingly unaffordable, the implications stretch beyond the realm of real estate, affecting economic stability, social equity, and overall quality of life.”