Year of the Unit: The Great Australian Dream is Shrinking

The Great Australian Dream of a house and a barbie in the backyard is fading. As the traditional quarter-acre block is relegated to the past, a fundamental shift is reshaping the property market across the nation’s capital cities. Apartment living, once seen as a compromise, is rapidly becoming the new reality for many Australians. Domain chief economist Nicola Powell has long been tracking this trend as stretched affordability steers demand towards more compact home options. Since 2003, the median capital city lot size has plunged 33.8 per cent to just 391sq m, while the average new apartment now measures a modest 118sq m—down 0.6 per cent over 15 years, according to the HIA-CoreLogic Residential Land Sales Report. Even detached homes have contracted from their 2008-09 peak of 211sq m as Australians adapt to urban living constraints. The market performance of apartments highlights this shift, according to Domain’s House Price Report. One-bedroom apartments in Perth that languished unsold last year are now experiencing price surges of up to 31 per cent. In Sydney, units are outperforming houses after the latter continued its downward trend, falling by $1300 during the final quarter of 2024, the second consecutive quarterly decrease. In contrast, Sydney unit prices reached a new high of $812,863, a quarterly increase of 0.4 per cent. Across 60 per cent of Australian suburbs, apartment values are rising faster than houses—a historic reversal signalling a fundamental change in how Australians are achieving homeownership. “We’ve seen such stretched affordability and what we’ve got currently [is] unravelling as buyers’ capacity has been clipped [and] is steering demand towards more affordable property,” Powell tells The Urban Developer . “The slowdown in price gains is more evident for houses than it is for units. Units are holding up much better.” Powell challenges the notion that apartment living is merely an effect of rate pressures and affordability. She suggests this may represent a more permanent shift in housing preferences as Australians reconsider what constitutes an acceptable living space in prime locations. ▲ Domain chief economist Nicola Powell: When you look at 2025, you have to ask, is this the year of the unit? “I always feel like units are seen as this compromise, and I don’t think that’s the case. Obviously, they generate greater affordability, which for some buyers gives them that ultimate stepping stone on to the property ladder. “But over time, more of our population is opting to live in an apartment. “More older Australian downsizers are choosing to live in an apartment, and that’s driven by a lifestyle choice. I think people are gravitating to this lock-up-and-leave, lower maintenance cost lifestyle, and it allows them to free up cash in other ways.” The irony of the current market is that while buyers increasingly turn to apartments as their best chance of entering the market, developers are finding it harder than ever to build them. Domain’s 2024 End of Year Wrap report shows that low construction approvals are undermining government housing crisis strategies as developers face major obstacles: soaring population demands, escalating building costs, workforce scarcity, regulatory bottlenecks, and elevated interest rates—all combining to stall critical new residential development. “They’re under pressure and the feasibility of projects isn’t stacking up, which is one of the pain points about delivering supply that is much needed across Australia,” Powell says. “And the fact that the market is slowing is probably not great for the outlook in terms of feasibility.” This pressure is particularly acute given current market conditions. Vacancy rates remain at critical lows—Perth at 0.5 per cent, Adelaide at 0.4 per cent and Brisbane at 0.9 per cent. While rental growth has moderated from its March, 2024 peak of 7.8 per cent to 6.7 per cent, these tight conditions are pushing more renters towards purchasing. Resimax Group founder Ozzie Kheir says the core challenge “in this environment of high interest rates”, is that “buyers’ capacity to borrow has been significantly eroded”. “[So], there has been a push toward townhouses and smaller detached lots under 300sq m as this is all that most people can afford,” he tells The Urban Developer . KPMG’s latest forecast reinforces the trend Powell has identified, showing unit prices rising nationally by 4.6 per cent compared with 3.3 per cent for houses. ▲ Buyers looking online for apartments near rivers or waterfronts away from capital cities is becoming more common, Powell says. City by city, the pattern becomes clearer: Sydney and Perth lead unit growth predictions at 5 per cent apiece, while Melbourne follows at 4.7 per cent. Powell’s research on geographical search patterns reveals both expected and surprising trends. “There is a clear relationship between distance from the CBD and unit searches,” she says. “As you’d expect, the proportion of searches for apartments decreases the further you move from city centres.” However, her findings also challenge conventional wisdom about where apartment demand exists. “What’s interesting is that we’re seeing consistent searches for units and apartments even in middle and outer suburbs,” Powell says. “People in these areas are still considering apartments either for affordability reasons or because they’re seeking lower-maintenance properties. “This shows buyer preferences are evolving beyond the traditional suburban house model.” Her research into search behaviour adds further nuance. “For units under 10km from the CBD, the median listing price is $950,000, but [for] where people are actually searching, that median input search price is $900,000,” Powell says. “Their budgets clearly are not meeting what is being provided in the market. But once you get to that 10km distance, this is where what people are searching for [and] what is being listed for units align better.” The Domain First Home Buyer Report also says saving for a deposit to buy a unit saves almost two years compared with buying a house. Powell says the property market in 2025 has decisively tilted towards apartment living, with entry-level units demanding just 30.7 per cent of household income across major cities versus 47.1 per cent for houses. ▲ Rooftop gardens offer a compelling alternative to traditional backyards as Australians embrace apartment living. Domain research shows that no Australian city experienced mortgage stress for apartments five years ago, and today’s market presents five capital cities where unit payments remain well under the stress threshold. Across combined capitals, it takes about 20 months less to save for an entry-priced unit than a house. Sydney and Canberra have even greater time savings. In Darwin, Perth, and Canberra markets, apartment payments consume less than 27 per cent of household income. Powell’s forecasts for 2025 represent a significant departure from historical patterns. “At Brisbane, for example, we’re forecasting a better outcome for unit prices than houses. And there are some cities where our forecasts are the same for units and houses. In Perth, Adelaide, and Sydney, we’re expecting an even outcome between houses and units.” It’s unprecedented in Powell’s experience. Historically, houses have consistently outperformed units in price growth forecasts, she says. Despite recent cash rate reductions slightly improving buyer capacity, a substantial gap persists between property prices and what buyers can afford, particularly for those entering the market. The price difference between houses and units presents significant market challenges. In Sydney, houses cost nearly twice as much as units. Powell believes this gap complicates the traditional property ladder, where homeowners typically progress from units to houses. “What we need to ensure is that there is a diverse array of homes, creating those ladders on the property market for people to be able to naturally progress on their journey of home ownership,” Powell says. Addressing the stigma sometimes attached to apartment living, Powell is blunt. “I think it’s the terminology that we seem to gravitate to as an industry, you know, it’s like either ‘compromised’ or ‘forced’ to live in an apartment,” she says. “With swelling population growth, there’s an increasing need for greater density in our big capital cities. Interestingly, despite our urban concentration, we have some of the least dense cities in the world—Sydney ranks among them. “I think we are seeing the property landscape change as these realities take hold.”

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