The gap between house and unit prices in Australia continues to widen, despite the affordability advantage offered by units, according to new figures released by property data firm Cotality. Over the past five years, house values in capital cities have increased at nearly two and a half times the rate of unit values, pushing the premium for a house to a record 32.4% in September. In Sydney, the gap between the median house and unit value has reached 76%.

Despite a demographic shift that will see a significantly larger proportion of Australians aged 55 or older, the market has not responded with a corresponding increase in suitable housing options for smaller, older households. The latest realestate.com.au Gemlife Downsizing Australia report found that most new residential construction continues to focus on four-bedroom houses – properties that do not align with the needs of downsizers or the growing cohort of older Australians.

Even as housing affordability becomes more challenging for many, the cultural preference for detached houses with backyards remains strong, influencing both buyer demand and market performance. Marketing campaigns, such as Westpac's focus on ditching the balcony for a backyard, reflect and reinforce this national sentiment.

Tim Lawless, executive research director at Cotality, highlighted this preference for larger, detached houses during Cotality's housing market webinar earlier this week. "I would have expected that as housing affordability becomes so stretched, there would be more deflection of demand towards the multi-unit sector, as well as the fact that supply levels across the multi-unit sector tend to be quite low as well," he said.

"But the reality is most capital cities are still seeing detached housing values rising at a faster rate than apartment prices, despite the fact that there is a substantial affordability difference between the two product types."

It is not the case everywhere though. Brisbane stands out as an exception, where unit values have outpaced house values following a period of high apartment supply that peaked in 2019. Lawless noted that Brisbane's unit listings are now nearly 50% below their five-year average, supporting stronger growth in the unit sector.

The gap between house and unit values in Brisbane has narrowed from about 80% in early 2022 to around 40% as unit prices have risen and house values corrected in response to interest rate changes.

Lawless pointed to the enduring appeal of space and private land among Australian buyers. "I think the attractiveness of the apartment sector probably comes down to affordability, but we still see Australians having a preference for space, a preference for a detached home with a backyard," he said.

"And logically, as affordability becomes more and more stretched and challenging, you'd probably expect that demand to deflect towards maybe the next best thing, which might be townhomes or low density styles of the multi-unit sector as well, rather than the high-rise sector, which seems to still be more appealing for, say, rental markets and for investors."

Lawless added that the supply-side solution should focus on both greenfield and apartment infill. "Apartments have some efficiencies like capitalising on existing infrastructure and providing relatively affordable housing in well-located areas," he said. "But at the end of the day, demand largely skews to detached houses limiting their feasibility. To address the most critical parts of housing insecurity, a boost to social housing is probably most urgent and important."