Australia capital city unit values outperform houses as rate hikes hit borrowing power

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Unit values outperform houses

Highlights

Since end of January, combined capital city house values fell 5.9 percent while unit values dropped 3.6 percent as rate hikes reduced borrowing power.
The national median house value is about $1.1 million versus $739,000 for units, widening the affordability gap to $361,000 amid tighter mortgage limits.
In Sydney since January, house values fell 9.7 percent and units 5.2 percent, highlighting greater sensitivity of detached homes to rising interest rates.

Capital city pricing gap widens

As reported by ABC News, detached houses are losing value faster than units in most Australian capital cities after the Reserve Bank lifted the cash rate five times in 2026, increasing mortgage costs and weakening purchasing power.

Across the combined capitals, house values have fallen 5.9 per cent since the end of January, while unit values are down 3.6 per cent. The pattern reverses the position seen last November, when houses were generally leading price growth in most markets.

The affordability gap remains a central driver of the shift. The national median house value stands at about $1.1 million, compared with $739,000 for units, leaving a $361,000 difference that becomes more significant as buyers can borrow less.

Canstar estimates that a person on an average full-time wage of $108,650 would lose more than $58,000 in borrowing capacity after the latest rate rise. A couple both earning average wages would see borrowing power reduced by nearly $117,000.

PRD chief economist Diaswati Mardiasmo says units are typically 25 to 35 per cent cheaper than houses, making them more attractive as repayments rise. She says many buyers who initially aimed for houses are redirecting their budgets to units to take on smaller loans and more manageable mortgage payments.

Sydney and Melbourne show strongest divergence

Sydney and Melbourne are showing the clearest split between the two housing segments. In Sydney, house values are down 9.7 per cent since the end of January, compared with a 5.2 per cent fall for units, while in Melbourne houses are down 8.3 per cent versus a 4 per cent decline for units.

Mardiasmo says Sydney's expensive housing market is especially sensitive to rising rates because buyers there usually carry larger mortgages. That leaves detached homes more exposed when financing costs increase quickly.

Even so, houses continue to lead over the longer term. Over the past decade, combined-capital house values have risen 64.6 per cent, compared with 24.2 per cent growth for units.

The current downturn is unfolding as households face a broader squeeze from higher living costs, rising interest rates and changes to property taxes. That combination is adding uncertainty to purchase decisions and pushing buyers to focus more heavily on value and repayment resilience.

As we noted earlier, UBS rate-hike outlook pointed to a longer Fed tightening cycle extending into 2027.

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