Units and apartments are a significant part of Australia's housing and investment property market. This article is an update to our June 2022 piece on financing for unit developments, and it is interesting to compare what’s changed in four years. In 2022, the cash rate was 0.10%, and interest rates were beginning to rise after an extended period of very low rates.
At the time, we flagged that reduced borrowing capacity would likely push more buyers towards apartments. Four years on, that thesis has largely played out, but in a more complex environment.
After years of underperformance relative to detached houses, conditions in the unit market have shifted, though the picture is more nuanced than headlines suggest.
Capital city house values rose roughly three times as much as unit values following the COVID pandemic. That gap is one of the widest on record, and while it is starting to narrow, it remains substantial.
| City | House | Unit | Gap |
| Sydney | $1.83m | $794,000 | $1.04m |
| Melbourne | $1.02m | $605,000 | $415,000 |
| Brisbane | $925,000 | $652,000 | $273,000 |
| Adelaide | $980,000 | $635,000 | $345,000 |
Sources: ABS transfer prices (Q4 2024) Cotality/CoreLogic, KPMG.
In 2025, around 76% of Brisbane unit markets matched or outpaced house price growth. Perth recorded similar results at 75%, and over 70% of Sydney apartment markets kept pace with houses.
Nationally, close to two-thirds of unit markets recorded stronger relative growth, marking a meaningful shift from the pattern of the previous three years.
Unit rents are rising faster than house rents across capital cities and regional areas. Rental demand remains a key driver for unit values, and vacancy rates are well below long-run averages, which attracts investors seeking strong property returns.
For investors, the income proposition has improved, though gross yields in Sydney and Melbourne remain modest relative to carrying costs at current interest rates.
| National Vacancy Rate (Mar 2026) | 1.0% (2.5% decade avg) |
| Balanced Market threshold | 4.0-5.0% |
| National Gross Rental Yield (Mar 2026) | 3.57% |
| Darwin Gross Yield | 6.0% |
| Sydney Gross Yield | 3.1% |
Sources: SQM Research, Cotality.
CBRE's March 2026 Outlook projects median apartment rents across capital cities will increase by roughly 24–27% between 2025 and 2030. It is expected that capital city vacancy rates will tighten to 1.1% by 2030.
Supply continues to favour existing property holders, but it's important to distinguish between the headline shortfall and the apartment-specific picture.
The National Housing Accord aims to build 1.2 million new, well-located homes over five years from 1 July 2024 to June 2029. Current figures show the reality is lagging.
| Shortfall (first 15 months) | 81,000 homes (27% below target) |
| UDIA projected deficit by 2030 | ~380,000 homes |
|
Annual apartment requirement (CBRE) |
~75,000 ~60,000 |
| Multi-unit completions (2025 vs 2024) | Down 24% |
| Multi-unit completions vs 2017 peak | Down 42% |
| Apartment approvals (Jan 2026 MoM) | Down 24.5% |
Sources: ABS, UDIA State of the Land 2026, CBRE Apartment Outlook March 2026.
Many structural constraints are at play here, including:
Construction costs are up by roughly 40% since 2020
Development finance of 6.5–7.5% (up from ~3.5%)
Skilled labour shortage
Planning Approvals adding 12–36 months
These factors suppress new supply, which in turn supports value for established stock in under-supplied locations.
Several scenarios are contributing to unit demand in 2026.
Affordability constraints
After two consecutive rate rises in early 2026, borrowing capacity has contracted materially, and more buyers are seeking apartments as a realistic option.
Population growth
Net overseas migration remains elevated, and an additional 4.4 million people are expected to increase the population towards 2040. The headcount will be more concentrated in established urban areas, where apartments dominate.
Investor re-engagement
Investors account for around 41% of home lending nationally. As noted above, tight vacancies and rising rents are drawing capital back into the unit segment.
Hybrid work patterns
Flexible working arrangements support demand for inner and middle-ring apartments near transport and amenities.
Government policy settings
Build-to-rent tax concessions, the expanded First Home Guarantee scheme, and planning reforms in NSW, Vic, and Qld are directed towards higher-density housing.
Several factors could weigh on unit values or dampen the outlook.
Further rate rises
Economists are backing a cash rate rise above 4.35% in 2026. Higher rates directly reduce borrowing capacity and can soften demand at the entry level of the apartment market.
Strata and building quality concerns
High-profile building defects have made buyers and lenders cautious about certain apartment types, with repairs, compliance, and strata levies eroding returns.
Oversupply in specific corridors
Pockets such as parts of inner Melbourne, Parramatta, and South Brisbane have seen concentrated apartment growth, which can cause softer valuations and longer selling periods in these areas, even in a tight market.
Regulatory intervention
APRA's introduction of a 20% limit on high debt-to-income ratio lending signals a more interventionist stance. Further macroprudential tightening, such as investor lending limits or tighter serviceability buffers, could slow demand.
Global and geopolitical uncertainty
Weaker consumer confidence, higher unemployment, or a sharper economic slowdown will impact the property market, including units.
Migration policy changes
Further tightening of migration policies could reduce rental demand for inner-city apartments and weaken current forecast assumptions.
Valuation and settlement risk (off-the-plan)
Buyers who purchase off-the-plan at lower rates may struggle to secure settlement finance at higher rates, causing price adjustments in newly built apartments.
Lender appetite for unit finance remains solid overall for buyers and investors, but selectivity matters. There are a few practical factors to keep in mind when seeking finance.
Property size
Units under 50 square metres can trigger lending restrictions. Be mindful of the internal living area measurements before applying for finance.
Location exposure
Lenders assess postcode concentration, particularly in high-density corridors. Locations with oversupply may attract tighter loan-to-value ratios or a limited choice of lenders.
Development scale
Smaller boutique complexes tend to be favoured by lenders for lower strata risk, a higher proportion of land value, and better long-term growth prospects. Larger towers can face valuation headwinds.
New vs Established
Established apartments with a track record of comparable sales often present a cleaner lending proposition than off-the-plan purchases, where settlement risk and valuation uncertainty are real issues in the current rate environment.
Non-bank options
The non-bank lending market is a competitive alternative for unit purchasers, offering flexible servicing models and higher-LVR products for well-qualified borrowers.
The unit market in 2026 is in a very different position than it was in 2022. The house-unit price gap is narrowing in most cities, structural under-supply is deeper, rental demand is acute, and affordability constraints are pushing more buyers towards apartments. The fundamentals are supportive, but careful selection, consideration of risks, and sound financing remain essential.
As with any property decision, the specifics matter: location, building quality, strata health, and financing structure are key influences of a successful outcome.