High population density hampering unit value growth: CoreLogic

CoreLogic’s latest Property Pulse research has indicated that there is a significant relationship between unit values and population density.

According to CoreLogic’s research director Tim Lawless, high-density unit markets are generally showing a lower level of value growth over both the past 12 months and the last decade.

Lawless noted that the longer-term relationship is “more significant”, possibly reflecting periods of higher unit supply “that weighed on value appreciation”.

“Sixteen of the top 20 have recorded a lower annual rate of unit value growth over the past decade relative to the broader capital city trend. Over the past 12 months, nine of the top 20 have underperformed,” Lawless said.

“On the other hand, high population densities provide virtually no explanatory power for house values with the coefficient of determination just .001 over the past 12 months and over the past decade.”

Areas with high population density have shown slightly stronger growth in unit rents with softer rates of capital appreciation across the unit sector, Lawless added.

Conversely, there is hardly any relationship between population density and value appreciation for trends in houses.

Lawless continued: “Softer value growth despite generally high levels of population growth and strong rental demand may be attributable to the propensity for higher levels of new housing supply in these same precincts.

“New supply, especially across the high-rise sector, can be ‘bulky’ with the potential to deliver hundreds, if not thousands of new dwellings to a market in a relatively short space of time.”

Dwelling stock available under 40% income dwindling

This data comes as CoreLogic (in collaboration with ANZ) found that the latest estimate of median annual household income nationally is $100,244 before taxes and assuming 30 per cent of this income is used on mortgage repayments at current average variable rates (around 6.3 per cent), an affordable dwelling purchase would be around $503,000.

However, as home values continue to climb, this affordable purchase price is below most actual dwelling values as the median Australian unit price sits around $640,000, while the median house price is around $834,000.

CoreLogic has estimated that only 17.4 per cent of dwelling stock is valued below $503,000.

Meanwhile, allocating 40 per cent of median household income to mortgage repayments would push the dwelling price purchase level to $670,000, with CoreLogic estimating that almost 37 per cent of housing stock has a value of $670,000 or less.

This is a far from the median income household being able to afford the median dwelling value in Australia, which is $773,000 currently.

[RELATED: Almost 50% of income needed for new mortgages: ANZ/CoreLogic]