How to find a more affordable home in Australia’s biggest capital cities

There’s no question that finding an affordable property in a pricey capital city is particularly challenging right now, especially for first-home buyers. 

Despite a nationwide housing downturn triggered by rising interest rates, it hasn’t become easier for most buyers to purchase an affordable home, because home loan repayments have gone up, causing borrowing capacities to go down.

Falling prices have made owners think twice about selling their homes, and because they’re holding off until conditions improve, there’s now far less homes listed for sale.

Recently, increased demand amid low supply has caused home prices to rise again, and while this could prompt more vendors to bring properties to the market, rising prices make house-hunting even more challenging.

With construction bottlenecks and a massive drop in the number of building approvals, the pipeline for new homes is shrinking at the same time as population growth is forecast to exceed expectations.

In short, there are going to be more people competing for fewer homes, potentially putting more upward pressure on prices.

Buyers looking to crack the market essentially have two options: continue saving while waiting for conditions to improve and hope for the best, or actively employ smart strategies to find a property within their budget.

Although the latter option will likely require some compromises, proactive buyers who take control of their property journey and choose this path are much more likely to find an affordable home sooner.

These are just a few of the strategies buyers can use to find a more affordable home. While these approaches might not suit everyone’s situation, by adapting their search to market conditions, buyers can potentially get on the property ladder sooner.

1. Embrace apartment living

If you’re set on home ownership, want to live closer to a CBD and have a limited budget, being open to an apartment instead of a house should be one of your first compromises.

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The savings are significant. Based on median prices, opting for an apartment instead of a house will save you about $700,000 in Sydney, $495,000 in Melbourne, $470,000 in Canberra, $375,000 in Adelaide, $355,000 in Brisbane, $310,000 in Perth, $265,000 in Darwin and $125,000 in Hobart, according to Domain’s latest House Price Report.

How much cheaper are apartments?

Capital city

Median price – houses

Median price – units

Price difference

Combined capitals$1,020,191$592,166$428,025
Source: Domain, powered by APM. Domain House Price Report, Q1 2023, houses and units.

The financial savings don’t end there. Apartment owners typically pay lower council rates, have smaller energy bills and won’t have to spend as much on maintenance. A smaller mortgage will mean less of your income will be spent on housing costs, and potentially allow you to make additional repayments, building up equity faster.

And if you’ve still got your heart set on a house, just remember, you don’t have to live in an apartment forever. Many first-home owners buy an apartment as a stepping-stone, taking advantage of the benefits of home ownership while working towards purchasing a larger house further down the track when family needs change and finances allow them to upgrade.

2. Opt for fewer bedrooms

It makes sense that bigger properties cost more, and the data backs this up.

In Sydney, three-bedroom houses are $350,000 cheaper than four-bedroom houses, according to Domain data. Similarly, opting for one less bedroom saves $270,000 in Canberra, $245,000 in Hobart, $185,000 in Adelaide, $145,000 in Perth, $140,000 in Melbourne, and $130,000 in both Brisbane and Darwin.

How much will an extra bedroom cost you?

Capital city

Median price – 4-bedroom houses

Median price – 3-bedroom houses

Price difference

Source: Domain, powered by APM. Domain House Price Report, Q1 2023, houses.

The same goes for apartments. The difference between a one and two-bedroom apartment ranges from about $75,000 in Adelaide to $210,000 in Melbourne.

A three-bedroom apartment in Sydney costs a whopping $380,000 more than a two-bedroom apartment, and in Melbourne, the difference is $265,000.

How much will an extra bedroom cost you?

Capital city

Median price – 3-bedroom units

Median price – 2-bedroom units

Price difference

Source: Domain, powered by APM. Domain House Price Report, Q1 2023, units.

Opting for one less bedroom might mean some compromises – you might have to give up a dedicated work-from-home space, the kids might have to share, or the in-laws might have to find their own accommodation when they’re in town. But if it means getting out of the competitive rental market sooner, it could be worth it.

Interestingly, there’s one situation where opting for a bigger property could actually make more sense. In Brisbane, the difference between the median price for a two- and three-bedroom apartment is only $17,750. 

Assuming you could save the extra $3550 to make up a 20 per cent deposit for a median-priced three-bedroom apartment costing $520,000, monthly home-loan repayments would only set you back an extra $84 per month, according to the Domain Home Loans Repayment Calculator. Just putting it out there: a daily $4 takeaway coffee ends up costing about $120 a month.

3. Forget free-standing

While a free-standing house comfortably spaced apart from surrounding properties might be the stereotypical model of home ownership, that doesn’t necessarily mean there’s something wrong with sharing a wall or two with your neighbours.

If you can live with a smaller block, potentially a little less natural light and the odd bit of eavesdropping, you can stand to save a lot of money – maybe enough to buy into your ideal neighbourhood.

By targeting a townhouse or duplex, buyers can potentially get into the property market sooner, often while enjoying a newer home with lower maintenance costs.

For example, Brunswick in inner Melbourne has a median house price of $1.26 million, but two-thirds of townhouses sold in the past year cost less than $1 million, with the cheapest selling for $660,000, about half the median house price.

Revesby in Sydney’s south-west has a median house price of $1.17 million, with only 15 per cent of free-standing houses selling for less than $1 million in the past year. By contrast, the majority of townhouses sold for between $800,000 and $900,000 over the same period.

It’s worth noting that, depending on the property, townhouse owners often share ownership in a complex made up of several townhouses. In some cases, residents have access to shared facilities, such as common areas and pools, but it can also mean owners have to pay strata levies and there may have fewer renovation or development opportunities.

4. Expand your search

It’s no surprise that buyers with limited budgets have more options further from the CBDs of our most expensive capitals. But what might surprise buyers is just how restrictive an inner-city search grid can be.

In Melbourne, only four suburbs within 10 kilometres of the CBD – Footscray, West Footscray, Maribyrnong and Maidstone – have a median house price of less than $1 million. On the other hand, more than two-thirds of sub-$1 million suburbs are more than 20 kilometres from the CBD. 

Compare this with the high end of the Melbourne market, where about 70 per cent of suburbs with a median house price of more than $2 million are closer than 10 kilometres to the CBD.

In Sydney, all suburbs with a median house price below $1,000,000 are more than 18 kilometres from the CBD, and three-quarters of sub-$1 million suburbs are more than 30 kilometres from the city.

By contrast, 85 per cent of suburbs with a median house price of more than $2 million are within 20 kilometres of the city, showing just how much of a premium Sydney buyers are prepared to pay for proximity to the CBD.

In Brisbane, about three-quarters of suburbs priced under the city’s $805,000 median house price are more than 20 kilometres from the CBD. Almost 80 per cent of suburbs in the million-dollar club are within 10 kilometres of the city centre.

When it comes to apartments, 86 per cent of Sydney suburbs with a median unit price less than the city-wide median of about $760,000 are more than 10 kilometres from the CBD.

For Melbourne buyers searching for an apartment below the city’s median of about $530,000, the number of suburbs available is almost doubled by searching further than 10 kilometres from the city.

In Brisbane, only three suburbs within 10 kilometres of the CBD – Gordon Park, Bowen Hills and Fortitude Valley – have a median unit price less than the citywide median of about $450,000. About 90 per cent of suburbs with a median unit price lower than Brisbane’s median are located more than 10 kilometres from the city centre.

Although CBDs have the highest concentration of jobs, not everyone works in the city, and with hybrid working still commonplace for many office workers, proximity is becoming less critical. By looking further afield, and potentially making compromises on the type or size of property, buyers with a limited budget are more likely to find properties within their reach.

Article source: Queensland Property Investor