Introduction

The Australian housing market is expected to see notable shifts in 2025, with KPMG predicting that overall house prices will grow by 3.3%, while unit prices will rise at an even higher rate of 4.6%. This divergence is largely driven by ongoing affordability constraints, which are prompting more buyers to favor smaller dwellings.

In this article, we analyze the factors driving these forecasts, explore how different buyer segments will be affected, and discuss strategies for homeowners and investors navigating the evolving real estate landscape.

Why Are Unit Prices Rising Faster Than Houses?

1. Affordability Constraints Driving Buyer Preferences

With rising interest rates and increasing property costs, many buyers are struggling to afford detached houses, leading them to opt for more affordable units. The shift toward units reflects a broader trend where:

  • First-home buyers are prioritizing affordability over space.
  • Investors are targeting units due to strong rental demand and attractive yields.
  • Downsizers are choosing smaller, low-maintenance dwellings over traditional houses.

2. Urbanization and Demand for High-Density Living

As Australian cities continue to grow, there is a rising demand for apartments and townhouses in well-connected urban areas. Factors driving this demand include:

  • Proximity to employment hubs, transport, and lifestyle amenities.
  • Increased government investment in high-density housing projects.
  • A cultural shift toward modern, low-maintenance living arrangements.

3. Stronger Rental Market Supporting Unit Investments

Rental yields on units remain attractive, particularly in inner-city locations where demand from young professionals and students remains high. This trend is likely to continue in 2025 as:

  • Vacancy rates stay low in key urban centers.
  • Rising immigration boosts demand for rental accommodation.
  • Investors seek stable, high-return property assets.

What This Means for Homeowners and Investors

For Homeowners: Should You Sell or Hold?

If you own a house:

  • With a 3.3% price increase expected, house values will still grow but at a slower pace than units.
  • Consider upgrading or downsizing based on long-term affordability trends.
  • Monitor interest rate movements before making major property decisions.

If you own a unit:

  • Stronger price appreciation (4.6%) could make selling in 2025 an attractive option.
  • Holding onto an investment unit may yield higher long-term gains due to sustained demand.
  • Evaluate local market conditions and consult property experts before making a move.

For Buyers: Where Are the Best Opportunities?

For first-time buyers:

  • Units may offer a more accessible entry point into the market.
  • Government incentives and stamp duty concessions can help reduce initial costs.
  • Consider location carefully to ensure long-term value growth.

For investors:

  • High rental demand makes units in metropolitan areas a strong investment.
  • Look for suburbs with planned infrastructure improvements and transport links.
  • Assess rental yield potential to maximize returns.

Future Market Trends and Considerations

1. Will House Price Growth Accelerate?

While house price growth is expected to be moderate in 2025, potential interest rate cuts later in the year could provide renewed momentum. However, affordability challenges may continue to cap demand in high-cost markets.

2. Regional Markets vs. Capital Cities

Regional markets have experienced a surge in demand in recent years, but price growth may stabilize as affordability improves in urban areas. Capital cities, especially Sydney, Melbourne, and Brisbane, will likely see sustained unit demand due to employment and infrastructure investments.

3. Government Policies and Housing Supply

Future government housing policies and supply-side initiatives will play a crucial role in determining market dynamics. Policies encouraging the construction of new housing stock, particularly units, could impact future price movements.

Conclusion

The Australian property market in 2025 is set for continued growth, with units outpacing houses in terms of price appreciation due to affordability constraints and shifting buyer preferences. While house prices are expected to grow by 3.3%, unit prices will likely rise by 4.6%, making smaller dwellings an attractive option for both buyers and investors.

For homeowners, buyers, and investors alike, understanding market trends and making informed decisions will be crucial in navigating the changing landscape. Are you considering buying, selling, or investing in 2025? Share your thoughts in the comments below!