Melbourne suburbs turning to units as houses become unaffordable

“The apartment market is now in a catch-up phase and houses have become too expensive,” she said.

“It reflects people’s willingness to compromise on space to be able to live relatively affordably in central Melbourne and in more popular areas … their alternative might be to own a property further out from the city centre, but for some that’s not really an option.”

Belle Property Armadale director Andrew James said the abundance of inner-city apartments meant first-home buyers could buy in affluent suburbs at a more affordable price.

Buyers can purchase an Armadale apartment for $688,656, which is a third of the suburb’s average house price of $2,611,398.

“First-home buyers are looking for good-sized apartments in the inner city and in areas such as Armadale, Windsor and Prahran because they can’t afford houses anymore, because the lifestyle there is better,” Mr James said.

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“They may have been renting before and now decide to buy because the repayments on an apartment are not that different in price from renting. So a lot of renters are now looking to buy a home.”

Mr James said while first-home buyers had been the main force driving the apartment market, investor activity had started to pick up in the past few months, helping to support growth in the unit market.

“This area of ​​the market has been incredibly resilient over the last 18 months … because of the type of buyers you attract.”

PEXA chief economist Julie Toth said rising house prices had led to a shift towards units and apartments.

“For many people who want to stay in the city, there is an issue of housing affordability and price because housing, particularly detached homes, is less expensive, so lower-priced apartments are more attractive,” she said.

Mr Toth added that the apartments had grown in popularity since Melbourne residents returned to CBD office buildings, with many buyers moving back to the city centre and suburbs following the pandemic.

“The biggest demand is for larger, freestanding homes where people can work from home; people moving to regional areas and out of the cities,” she said. “What we’re seeing now is not a reversal of that trend, but a bit of catch-up in parts of the market that have missed out on that growth.”

O’Brien Real Estate Bentleigh partner and auctioneer Harrison Mosley said there weren’t as many apartments in bayside areas, such as Black Rock, as in the city centre, so competition was more intense.

“One of the reasons these areas are seeing good growth is … there is a lack of supply of these properties and generally when they do come in, competition is quite strong,” he said.

“Buying a whole block of land or a house in that suburb can be tricky in terms of pricing. (Units) offer a good option for buyers to still get into the location they want.”

Mr Mosley said rising interest rates were leading to higher mortgage repayments, forcing some homebuyers to lower their budgets.

“Interest rates have been at this level for a while and obviously some people are not as willing to take on as much debt at current interest rates as they would have been a few years ago, so they are making some compromises and opting for something more affordable, like a unit or apartment,” he said.