Sydney’s property market is seeing a shift at the moment as affordability pressures drive more buyers toward apartments over houses.
According to a new report from Domain, demand for units is outpacing supply, potentially setting the stage for price increases in the coming years. With house prices steadily rising over the years, limited supply and high interest rates, many buyers are rethinking their options, with a focus now on affordable, lower-maintenance apartment living.
Over the last five years, searches for units have surged by 94.3 per cent, while new apartment listings have only grown by 7.5 per cent. With house prices soaring by 53.6 per cent in the same period (compared to 15.1 per cent increase for units), many buyers are finding it tougher to afford houses, especially in inner-city areas. For many, compromising on the type of property allows them to stay in better neighbourhoods within reach of the city and key amenities.
The ageing population boosts apartment appeal
Domain also found there was a big influence from the ageing population on housing demand. With nearly one in five Sydney residents over 65 now living in apartments, the trend toward low-maintenance housing options for downsizers is expected to keep growing. This ageing demographic will likely double over the next four decades, further increasing demand for apartments that cater to lifestyle needs without the upkeep required by larger homes.
Supply constraints pose challenges
Despite rising demand, the apartment market in Sydney is still facing a supply crunch. Many developers are holding back on new projects due to high construction costs, leaving fewer options for buyers in the near future. As interest rates are projected to start falling next year, experts are expecting renewed demand for apartments, which could drive prices up sharply given the limited stock on the market.
With few new apartment developments in the pipeline, the supply issue is expected to get worse. This situation creates an environment where apartment prices could increase steadily over the next few years as demand continues to rise but supply remains tight. Sydney buyers’ agents are seeing this trend.
First-home buyers drawn to inner-city units
Sydney’s inner-city suburbs have become hotspots for unit demand, particularly among first-home buyers looking to capitalise on recent price falls. With competitive pricing on some units, these buyers see an opportunity to secure property in central locations with the potential for capital gains when interest rates eventually decline.
On top of that, some existing homeowners from outer suburbs are showing renewed interest in inner-city apartments, which they can use as convenient urban bases.
Townhouses offer a middle ground for buyers
While apartments are gaining popularity, townhouses are also in demand, especially among those looking for a compromise between apartment affordability and the privacy of a standalone home. Townhouses now account for 28.4 per cent of property searches.
This middle-ground option is especially attractive in areas like Campbelltown, Blacktown and Penrith, where townhouse buyers are often willing to pay significantly above the listed prices.
Domain’s data also reveals some interesting insights into buyer preferences, with some clear price gaps between search prices and listing prices across Sydney’s suburbs. In high-demand areas like Mount Druitt, buyers are searching for units at prices 27 per cent higher than what’s listed, suggesting strong interest and limited supply in these regions.
On the other hand, premium suburbs like Manly, Canada Bay and North Sydney-Mosman command a premium over search prices, with buyers often willing to pay an extra $400,000 to secure a home in these areas.
Outlook for Sydney’s unit market
As Sydney’s affordability challenges continue to get worse, the trend toward apartment living is expected to grow, driven by buyers struggling to afford higher prices and lifestyle shifts. With supply issues likely to persist, the apartment market in Sydney could see some solid price increases over the next few years. If you are interested in capitalising on these property opportunities, contact your local buyer’s agent in Sydney today.
