The disparity between house and apartment prices in Sydney has long been a defining feature of the property market. However, recent trends suggest that apartments, particularly in the Inner West, could be poised for a period of accelerated capital growth. With cost-of-living pressures, infrastructure upgrades, and shifts in buyer preferences, could we see a tipping point where units begin to catch up with houses in terms of value growth?
Why Apartments May Outperform Houses
In last week’s article, we looked at the widening affordability gap between houses and units following a recent Sydney Morning Herald article: The Growing Challenge of Upsizing in Sydney However, several factors could point to a potential shift in favour of apartment capital growth:
- Affordability Pressures: As house prices remain out of reach for many buyers, apartments offer a more accessible entry point. This is particularly true in the Inner West, where median house prices often exceed $2 million, while units remain significantly more affordable. For example, the median house price in Leichhardt is currently $1.975m compared to a far more palatable $950k for units (Source; realestate.com.au).
- Demand from Younger Buyers and Investors: Younger demographics and investors are increasingly drawn to apartments for their affordability and proximity to lifestyle amenities. Suburbs like Marrickville, Dulwich Hill, and Glebe are seeing heightened interest due to their vibrant communities and excellent transport links.
- Demand from Downsizers: As the Baby Boomer generation is downsizing from family sized homes in the suburbs to smaller properties closer to the City and amenities, demand for high quality and well designed apartments with lift or level access is skyrocketing in areas like the Lower North Shore, Eastern Suburbs and Inner West.
- Infrastructure Upgrades: The extension of the Sydney Metro City and Southwest line into Inner West suburbs such as Marrickville and Dulwich Hill is expected to boost demand for properties near these stations. Improved accessibility often translates into higher demand and therefore higher property values.
- Supply Constraints: A weak pipeline of new apartment developments means the sector is likely to remain undersupplied. This scarcity could drive up prices as demand increases.
Predictions for Apartment Growth in the Inner West
Experts are forecasting notable growth for apartments over the next few years:
- Oxford Economics Australia Projections: Senior Economist, Maree Kilroy has forecast that units are expected to outperform houses in capital growth from 2025 through 2027, with an annualised growth rate of 6.7% (versus 6.2% for capital city houses).
- Localised Growth Trends: Suburbs like Lilyfield have already demonstrated strong performance, with unit prices rising by 14.2% over the past year (compared to just 3.1% for houses). This trend could continue as demand remains robust.
- Infrastructure-Driven Value Appreciation: Areas benefiting from major transport upgrades, such as Dulwich Hill and Marrickville, are likely to experience sustained growth as improved connectivity enhances their appeal.
Key Factors to Consider When Investing in Apartments
To maximise capital growth potential, it is essential to focus on high-quality apartments that align with market demand. Here are some features to prioritise:
- Low-Density Developments: Apartments in smaller buildings or boutique complexes tend to hold their value better due to reduced competition and greater exclusivity.
- Strategic Locations: Proximity to transport hubs, schools, parks, and shopping precincts is critical for both liveability and future resale value.
- Quality Construction and Maintenance: Well-built and well-maintained buildings are less likely to face costly repairs or depreciation issues.
- Well-Managed Strata Schemes: A proactive strata management team ensures smooth operations and regular maintenance.
- Appealing Features: Units with natural light, outdoor spaces (e.g., balconies or courtyards), good layouts, and off-street parking are highly sought after.
The Road Ahead for the Inner West Apartment Market
While houses have historically outperformed apartments in Sydney’s property market, changing dynamics suggest that units may start closing the gap. The combination of affordability pressures, infrastructure improvements, and demographic shifts creates a favourable environment for apartment growth.
For buyers considering an investment or home purchase in Sydney’s Inner West, now may be an opportune time to act. With expert guidance from buyers’ agents who understand the nuances of this competitive market, securing a high-growth apartment could be a strategic move.
As we look ahead to 2025 and beyond, apartments in the Inner West appear well-positioned for strong capital appreciation – potentially marking a turning point in Sydney’s property market dynamics.
