Melbourne home buyers could save $115,000 – with one compromise

Aspiring home buyers in Melbourne could pay an extra $115,000 to secure a house with a fourth bedroom, making the cost of extra space prohibitive to some buyers.

The typical four-bedroom house would work out to an extra $549 a month in mortgage repayments compared with the typical three-bedroom house.

The median price of a four-bedroom house in Melbourne hit $900,250 in the June quarter after a 1.2 per cent rise over the past year, Domain data shows.

This compares with the typical three-bedroom house, up 1.9 per cent in a year to $785,000. That fourth bedroom now costs an extra $549 a month in mortgage repayments, assuming the buyer has a 20 per cent deposit on a loan taken out over 30 years.

The price difference between a two and three-bedroom house is a more modest $65,000, as the typical two-bedder costs $720,000.

Experts say bigger homes are now more of a luxury item, with the price difference offering clues about the location of the home and the size of the block. It’s forcing budget-strapped home buyers to either buy further afield or compromise on space.

For Melbourne marketing professional Sarah De Rango, the cost of an extra bedroom meant she and her partner, an accountant, were forced to choose between space or lifestyle on their first home – and in the end, they chose lifestyle.

Armed with a budget of $850,000, the couple spent a couple of months pounding the property pavement and wound up using a buyers’ advocate to help them purchase a two-bedroom home in Eaglemont for $807,000 last week.

“Our criteria was two bedrooms, 1½ bathrooms and two car spots in somewhat of a nice area,” De Rango said.

“We knew we wouldn’t be able to get anything big, but we found with our budget we still had to compromise.

“Everything that sort of fit the bill in our price range would end up going over [the $850,000 mark] at auction. It was a bit discouraging at times, but we were set on where we wanted to live. For us the lifestyle was more of a priority than the house size.”

The pair ended up with a two-bedroom, one-bathroom villa in a block of eight on the border of Heidelberg through buyers’ agent Wendy Chamberlain, of Chamberlain Property Advocates.

Chamberlain said first home buyers tended to prioritise lifestyle and community over a larger home further from the city.

“A desirable location is winning out over space. Location and proximity to where you work is the big one now. People don’t want to have to do that commute and they want access to amenities and access to community,” she said.

“And people will sacrifice space for that now.”

It’s creating demand in inner-city hotspots, she said, with younger property hopefuls particularly loath to leave the comfort and convenience of a metropolitan hub.

As to why the price gap is so cavernous between three and four-bedroom homes, Chamberlain said it reflected the overall size jump between properties, the location and the rising cost of building – making it harder than ever for buyers to upgrade from an apartment to a family home.

The price gap between two and three-bedroom units is even larger, with buyers forced to splash an extra $235,000 for a third bedroom. Two-bedroom units cost an average of $590,000, while the median three-bedroom unit price is now $825,000.

Domain chief of research and economics, Dr Nicola Powell, said the gap between three and four-bedroom houses points to the calibre of a four-bedroom house.

“When you get those bigger homes, you’re often getting a second lounge room too and perhaps a rumpus or a study,” she said.

“A $100,000-plus difference between three and four-bedroom homes showcases a very clear price difference, and I think the bulk of four-bedroom houses are in another bracket.”

But while the gap is sizeable, Powell said smaller homes were attracting demand due to affordability constraints and the densification of cities.

“Our homes are probably going to shrink over time … and blocks are shrinking in Australia too. What comes with that is how do we drive affordability as our population swells?”

Powell added that while Melbourne’s bedroom price gap was a sizeable one, it was nevertheless far narrower than that of Sydney ($289,200) and Perth ($150,000).

Barry Plant CEO Lisa Pennell put the price difference between three and four-bedroom houses in Melbourne down to the prohibitive cost of trades.

“Trades are impossible here at the moment and a lot of tradespeople have been sucked up by government contracts,” she said.

Pennell added that premium homes were also still in high demand, despite Melbourne’s market remaining somewhat flat.