A big driver of luxury house price growth is simply land value. There are only so many properties you can build in our most expensive suburbs, which tend to be located close to beaches, bays and rivers. Anything with even more unique characteristics that are hard to replicate, such as a view or close proximity to the water, are likely to have increased even further.

Another driver has been renovation activity, which surged during and immediately after the pandemic. Luxury homes have become even more expensive over time as more investment has taken place. And while it is not possible to measure, it is likely a higher proportion of well located luxury homes have been renovated than the rest of the market and almost certainly true that more has been spent on them.

A greater concentration of wealth has also likely increased prices. A recent report from Oxfam has found that the wealth of Australia’s richest people has increased at a rate of $1.5 million per hour since 2020. A lot of this wealth has been invested in luxury homes around Australia.

While luxury homes have outperformed, they have also exhibited a lot more volatility in price growth. During the pandemic, they increased far more than more affordable properties. But they also saw a much greater decline in 2022. Timing the purchase of a luxury home appears far more important than it does for buying one closer to the median.

Units have also outperformed, showing a switch in the way that wealthy people want to live. Historically, the majority of apartments built in Australia have been aimed at people that could not afford a house. As such, many of them were seen as a stepping stone to buying a house. Now there is growing demand for luxury apartments and the gap between the median and the most expensive has grown as quality has improved.

Will this outperformance continue? The Federal Government Housing Accord seeks to build more homes within established suburbs. However, it is likely that most of them won’t be built in our most expensive suburbs. Owning a luxury house or apartment in our most expensive suburbs is set to continue to be a solid investment over the next decade, providing of course you can afford to buy one in the first place.

Nerida Conisbee
Ray White Group
Chief Economist