The forgotten middle child of the property market: the stuck next-home buyer

Graduating from first-home buyer to next-home buyer status is not all confetti cannons and celebratory selfies in front of oversized sold stickers – instead, it’s becoming increasingly difficult to upsize from a unit to a house.

The Domain House Price Report reveals the price gap between a unit and a house is close to double in most Australian capital cities. In Sydney alone, the median house price is $1,645,444 compared to $812,863 for a unit – an $832,681 jump.

“For somebody who has purchased a unit and they want to purchase a house as their next property, it can probably feel like starting again,” says Domain chief of research and economics Nicola Powell.

Beyond the price gap between a unit and a house, it’s also the disparate capital growth between the two that has this cohort of buyers stuck.

“When you are a first-time buyer, and perhaps you’re looking to purchase a unit or apartment, we have to remember the units and apartments don’t see the same rates of capital growth as houses,” says Powell.

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325 Rossmoyne Street, Thornbury VIC 3071

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In the past five years, Melbourne’s median house price has risen $136,271 compared to units’ capital growth of $15,206 in the same period.

In Sydney, the median house price has soared by $510,000 compared to units, which grew by $73,7000, according to Domain data.

For those first-home buyers who purchased a unit and are looking to upsize to a house, this capital growth is not enough of a stepping stone to make the full leap.

The reality for many is that selling and buying costs alone would likely absorb any capital growth from the unit – leaving little for the house deposit itself.

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42 Bishopgate Street, Camperdown NSW 2050

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AXTON Finance partner mortgage broker Nicole Campbell regularly works with Melbourne-based first-home owners who have outgrown their property and are looking to upsize.

“I’ve got quite a few first home buyers that thought they were doing the right thing five years ago by buying an apartment, getting in the property market, and five years later it’s only appreciated by 10 grand,” she says.

“They had all of the best of intentions but because the property hasn’t appreciated, they’re sort of stuck.”

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197 Smith Street, Thornbury VIC 3071

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Campbell says a priority for many first-home buyers is trying to unlock first-home buyer concessions, which can save thousands on stamp duty and lower the deposit required to secure a property.

However, these concessions are capped for properties within a certain price range and narrow the field regarding properties first-home buyers can access.

Within this capped budget, Campbell says first-home buyers are “really limiting themselves, generally, to apartments, maybe a unit that’s on a shared title run by a body corporate”.

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11 Dermot Street, Preston VIC 3072

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When first-home buyers are finally ready to move on from their first property, they face a new set of challenges if capital growth has been minimal and the goal is to transition to a house.

For Powell, this problem highlights “the desperate need for a greater array of housing and the need for the missing middle of affordability and that is townhouses”.

In the interim, Powell suggests where possible, first-home buyers consider apartments or units with unique qualities that will add to their value long-term.

“It’s ensuring that you are purchasing in the location and the right type of apartment or unit to create the foundations for better capital growth,” she says.

“That might be you choose or opt for an apartment that has a bit of a heritage, art deco as an example, or it’s more of those low-rise apartments.”

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10 Swain Street, Sydenham NSW 2044

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So, what are the options for the property market’s seemingly forgotten middle child?

Campbell encounters next-home buyers who are increasingly considering rentvesting, moving further out or staying put in their properties longer until something more affordable is available.

Buyer’s agent Rhiannan Jenkins of Sourced Property works with next-home buyers across Sydney who are facing similar challenges.

To adapt to these challenges, she says next-home buyers are purchasing houses in need of repair to make the jump from unit to house.

“I think it’s more the level of renovation is what they would compromise on and what I’m seeing is people are really still prioritising location,” Jenkins says.

“They are compromising on the level of finish, so whether that means they can move into something functional and practical, but it does need an update or it’s going to need some work over time”.

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77 Rennie Street, Thornbury VIC 3071

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For the often stuck next-home buyer to become “unstuck”, Powell believes, we need to ensure “we have a number of steps on the property ladder so somebody can transition to upgrading to their next home.

“We need the right amount of houses and the right amount of configurations and property types available to allow that first-time buyer to then upsize into their second home”.