Why Units Are Outpacing Houses in Australia's Property Downturn

National house prices are no longer outrunning units, and in Sydney and Melbourne the pattern has reversed. Cotality's Home Value Index, with data to 31 August 2026, shows house values falling further than unit values year to date. For a property investor weighing up a house against a unit, that shift is worth understanding before deciding what to buy next.

• National house values: down 1.7% year to date to August 2026
• National unit values: down 1.0% over the same period
• Sydney houses: down 7.7% year to date, against 3.9% for units
• Melbourne houses: down 7.5% year to date, against 3.5% for units

Houses Are Falling Faster Than Units

The year-to-date figures are not a one-off. Over the past quarter, national house values fell 3.3% against 2.2% for units, and over the past month houses were down 1.1% against 0.5%. Sydney and Melbourne show the same pattern on every recent timeframe.

The 12-month annual figure looks different, with national houses still up 2.9% against 2.0% for units, reflecting stronger conditions earlier in the cycle. The more recent monthly and quarterly numbers agree with the year-to-date result and show where the market is actually heading.

Rental yields add another layer. The national gross yield sits at 3.5% for houses against 4.6% for units, widening in Sydney to 2.9% versus 4.4%. The national vacancy rate has crept up to 1.9% in August, still below the pre-pandemic average of 3.3%, but up from a record low of 1.5% in February.

Why the Gap Is Opening

Cotality's research director Tim Lawless links the downturn to high mortgage rates, reduced borrowing capacity and four consecutive quarters of falling real wages. Those pressures bind hardest at the price point a house typically commands, which is why houses are leading the declines.

• An affordability ceiling on houses, where a higher entry price meets tighter borrowing capacity
• Higher unit yields, which matter more now that negative gearing on established properties phases out from 1 July 2027
• First home buyer and downsizer demand, concentrated at the lower price points where units sit

What a House Still Offers: Land and Long-Run Growth

A house carries a higher share of land value relative to the building, and land, unlike a building, is not a depreciating asset. That has historically been the argument for stronger long-run capital growth from a house over a full cycle, even while it underperforms right now.

The tradeoff is entry price. Land content pushes up the purchase price and the stamp duty payable, exactly where borrowing capacity and serviceability constraints are biting hardest.

The Cost Side of a Unit

A unit carries body corporate, or owners corporation, levies a house does not: an administrative fund for running costs, and a sinking fund for future capital works. These reduce the net yield advantage a unit otherwise holds.

They also carry a risk a house does not. A poorly funded sinking fund, an unresolved defect or a surprise special levy can land on an owner with little warning, so checking the scheme's financials and recent minutes before buying is not optional.

Depreciation: A Real Point of Difference

Both can claim the Division 43 capital works deduction, at 2.5% of construction cost a year over 40 years, but they diverge from there. A house's claim is limited to the dwelling on its own land. A unit's claim extends to its share of common property, such as lifts, pools or shared driveways, which can lift the total.

One rule applies equally to both. Since 1 July 2017, section 40-27 of the ITAA 1997 has denied a deduction for the decline in value of second-hand plant and equipment already installed when an investor buys an established house or unit. Only genuinely new plant and equipment stays deductible.

Weighing It Up for Your Next Purchase

None of this points to a single right answer. The two property types are trading off different things against each other right now, and the balance depends on what you are trying to achieve.

• Land content and long-run growth against a lower entry price and higher yield
• No ongoing levy on a house against body corporate costs and owners corporation risk on a unit
• A narrower depreciation claim on a house against a wider one on a unit
• Local vacancy, yield and price data for the actual suburb, not just national averages

Talk to Us About Your Position

The data makes a reasonable case for units on price momentum and yield, and an equally reasonable case for houses on land content and long-run growth. The right call depends on your timeframe, borrowing capacity and portfolio mix. We cannot advise on an individual's circumstances in an article, but we can work through what these figures mean for a purchase you are considering. Get in touch to talk it through.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.