Buyers driven into town houses amid house price crunch

Domain’s new Matching Demand report found that town houses are the “missing middle” of the market, with prices closely matching buyer and seller expectations across all capital city rings.

The report, which compared prospective searches with listings, found that Sydney showed the widest gap between purchaser expectations and actual town house and house prices across the capital cities.

Canberra also emerged as more expensive than buyers expected, showing over a $700,000 gap between searches and listings for inner-ring houses and town houses.

Domain’s chief of research and economics, Dr Nicola Powell, said the report showed stretched affordability, particularly in the largest capital cities, where scarcity of land has caused a higher premium.

“This is where townhouses are really becoming seen as that new middle ground; they are that bridge between aspiration and affordability,” she told Broker Daily sister brand REB.

“With townhouses, that price alignment is within roughly 5 to 10 per cent of buyer budgets across most capital cities, particularly when you’re looking at that middle and outer suburbs.”

Sydney

Across the capital cities, Sydney remained the most expensive, with data showing the biggest gap between buyers’ budgets and actual listings.

Town houses in Sydney’s inner ring had an average gap of $100,000 between searches and prices, while the city’s outer ring showed a $170,000 gap due to continued land constraints.

Surprisingly, buyers in Harbour City’s middle ring had their finger on the pulse, as town houses matched their budget, with the report finding a $0 gap.

In comparison, houses in Sydney have stretched affordability further across all three rings, being between $150,000 and $300,000 more expensive than buyers’ budgets.

Melbourne

Melbourne followed a similar trend to Sydney, with inner-ring town houses being $150,000 higher than budgeted, while inner-ring houses were $300,000 above what buyers wanted.

Similarly, in the city’s middle ring, town houses were, on average, $100,000 above purchasers’ expectations.

In stark contrast, houses in the middle ring were priced below buyers’ budgets, being $100,000 cheaper than their searches.

As for the outer ring, Melbourne town house prices were generally $10,000 lower than expected, while houses were $50,000 below.

When it came to individual suburbs, the widest gaps were found in Melbourne’s premium east, including Boroondara, Stonnington, Glen Eira, and Bayside.

“These areas are defined by high land values, limited redevelopment capacity and deep owner-occupier demand, which keeps sellers’ price expectations elevated,” the report said.

Canberra

In Canberra, the city’s inner-ring market proved to be significantly pricier than buyer expectations for both town houses and houses.

Houses in the inner ring had the largest disparity between purchasers’ budgets and listings of all the capitals, with a $712,000 gap, reflecting limited supply and a compact market.

Meanwhile, median town house prices in Canberra’s inner ring were $350,000 higher than the prices buyers searched, outdoing Melbourne and Sydney.

Brisbane

While Brisbane remains a buyer-led market, house prices in the inner ring were $300,000 above what had been searched, similar to Melbourne and Sydney.

However, house gaps in the middle ring fell to just under $100,000, before dropping to near parity in the outer ring.

Town houses in the middle and outer rings were priced $74,000 and $50,000 less than what purchasers were seeking – reflecting greater stock diversity and more balanced demand.

Adelaide

Adelaide homes were seen to largely favour buyers, with prices often below what property seekers were searching for or near parity.

Similarly, the city’s inner, outer and middle-ring town house median prices were all around $90,000 lower than what purchasers were looking for.

As for the housing markets, the inner and middle-ring prices showed modest gaps both ways, of $29,000 and -$25,000, while outer-ring houses were $15,000 above what was expected.

Perth

Across the inner, middle, and outer-ring markets, Perth’s town houses were all priced below expectations, with gaps ranging from -$1,000 to -$50,000.

While the housing market also recorded modest negative gaps, the trend of costlier central homes continued, with the inner ring showing a gap of $75,000.

While houses nationwide remain largely unaffordable, Powell said that Sydney showed the biggest gap between listings and searches, with median house prices soaring well above buyers’ targets.

“The affordability gap is still there even in those more affordable outer suburbs or, what is deemed as more affordable outer suburbs,” she said.

“The price premium for land and the scarcity of land is what creates that high price premium for houses, particularly in the inner city, and this is where terrace homes and town homes really start to come into their own.”

Powell said many buyers were open to town houses as an alternative to houses, particularly when searching in a specific area and were ultimately trying to find something within their budget.

“What we are seeing over time is that the popularity of townhouses and units is growing … that’s driven by two reasons, affordability, but also the connectivity that townhomes and units provide for homeowners,” Powell said.

“If you are locked in a particular location, it becomes about a compromise, and that compromise might be location, it might be on property type, or it might be on the configuration of the home.

To narrow the housing gap in Sydney, Powell said there could be more focus on building the right types of homes that actually match buyer capacity.

“It is about boosting medium-density supply, particularly in those middle and outer suburbs. And it’s about streamlining approvals and unlocking the infill development sites,” she concluded.

[Related: Homes worth $250k more than 5 years ago]