Demand Drives $ Price Increases

Suburbs attract different people for particular reasons; the cafes, nightlife, public transport options, and proximity to the CBD that Fitzroy offers generally appeals to a younger and more urban crowd. Whereas the parks, schools and quiet of Viewbank draw an older, family-minded demographic. Different people require different types of property. Some property types are in greater demand than others – in particular neighborhoods, suburbs, municipalities, and regions – and it’s this variable demand that helps to explain price fluctuations. If 4 or 5 people tried to buy the same house, that house would usually sell for a higher price than if 1 or 2 people tried to buy it. If 30 people had only 5 suitable houses to choose from, all of those houses would likely sell for a higher price than they would if more suitable houses were available (say 10 or 15). Understanding these supply-demand equations goes a long way in explaining the different $ prices over the last few years.

Across Melbourne’s Northern Suburbs, 2-3 bedroom houses have experienced the strongest $ price increases, up about 19% since 2014. Comparatively, prices for 4+ bedroom houses have increased about 12%. While this consistent across all municipalities, generally speaking, 4+ bedroom houses may simply be too large for many buyers in the Northern Suburbs; a greater imbalance between supply and demand for 2-3 bedroom houses is contributing to stronger price growth. Looking at units / townhouses, prices have grown about 9% for 3+ beds, compared to 3% for 1-2 beds. The fact that larger units / townhouses are experiencing 3x the price growth suggests that demand for 1-2 bedroom units / townhouses is not particularly strong. While these small abodes may deliver greater % rental returns for investors, and may appeal to first homebuyers seeking to enter the market, they can prove difficult to ultimately sell, and therefore, the price appreciation isn’t as great. Understanding local demographics and demand for particular property types is very important – for developers, investors, buyers and sellers alike.