APN Research Brief: Australia's Record House-Unit Premium, and the Case for Upzoning

Three separate data threads point to the same underlying story. Cotality’s valuation data shows a market where the price of land, not the price of shelter, is doing almost all of the growing — captured most starkly in a house-unit premium that has more than doubled in five years. Government and survey data shows a large and rising share of mortgage holders under sustained cost pressure, even as the Reserve Bank’s own arrears figures stay benign. And the Grattan Institute’s latest report ties both of those threads back to a single policy lever: planning rules that keep roughly 80% of inner and middle-ring Sydney locked at three storeys or fewer.

None of these threads is new on its own. What has changed is that they now line up cleanly enough — record premium, concentrated worst in the most zoning-restricted city, alongside sustained household cost pressure — that Grattan is using exactly this combination as the evidentiary case for a specific, concrete reform: as-of-right approval for three-storey townhouses and apartments on residential land in every Australian capital.

Cotality (formerly CoreLogic) put the total value of Australia’s residential real estate at $12.0 trillion in October 2025 — “an all-time high valuation… according to Cotality.”¹ The figure is more than double what the market was worth a decade ago, and the growth is explicitly attributed to soaring land values rather than the value of dwellings themselves.¹ It’s a large part of why Australian households rank near the top of global wealth tables, even though that wealth is illiquid and heavily concentrated in one asset class.¹ In effect, the $12 trillion figure is a direct measure of how much the market is now willing to pay for scarce land.

That scarcity shows up most clearly in the gap between what a house costs and what an apartment costs. Cotality’s November Monthly Housing Chart Pack put the premium for a detached house over an apartment across the combined capital cities at approximately $363,000 — “a series high that is just shy of half (49.9%) the median capital city unit value.”^2,4 That gap sits on top of a median capital-city house value of $1,091,000 against a median unit value of $728,000.⁴ Cotality economist Kaytlin Ezzy explains the mechanism plainly: “Houses have always seen stronger uplift than units in the long term because of the associated land value.”² Units and houses both provide shelter; only houses come with an exclusive claim on land, and it’s that claim the market is pricing at a record premium.

The speed of the move matters as much as its size. The premium “has grown from just 20 per cent five years ago”² to 49.9% today — a jump that explains why the political and policy urgency around this issue has escalated so quickly. And the national average conceals sharp geographic divergence: the premium “ranges from 31.6% in Hobart to a commanding 77.8% in Sydney.”² That Sydney sits at the extreme end is not incidental — it is also, as later sections show, the city Grattan identifies as having the most restrictive housing zoning of any Australian capital.

Key Market Metrics, October 2025

CommBank’s analysis of the October 2025 data points to two forces working together: “tight supply and earlier rate cuts continue to fuel price growth above expectations,” with the annual growth rate sitting at 6.1%, “fuelled by earlier interest rate cuts, tight supply and strong market momentum.”⁵ PropTrack’s independent October report reaches the same diagnosis from its own data, citing “lower mortgage rates,” “increased borrowing capacities,” and “constrained supply” as the key drivers.⁶

There’s a feedback loop worth naming here. The RBA cut interest rates three times through 2025 — in February, May and August — specifically to ease financial pressure on households.² But in a market where supply is already tight, lower rates mostly translate into higher borrowing capacity, and that extra capacity gets bid straight into prices. A demand-side tool aimed at easing pressure ends up widening the very premium it was meant to relieve, because it was never going to fix a supply-side problem. That mismatch is central to the case Grattan makes later in this piece for a supply-side response instead.

The strongest price momentum through the second half of 2025 wasn’t in Sydney or Melbourne — it was in Perth and Brisbane. CommBank noted “Perth and Brisbane lead the charge,”⁵ PropTrack’s monthly figures had Adelaide (+1.2%) and Brisbane (+0.9%) leading capital growth,⁶ and its annual figures showed Darwin (+12.8%), Brisbane (+12.6%) and Perth (+11.8%) as the strongest gainers nationally.⁶ Read alongside Sydney’s 77.8% premium, this looks like a displacement effect: PropTrack attributes regional and smaller-capital growth partly to “relative affordability and lifestyle appeal,”⁶ consistent with buyers priced out of Sydney and Melbourne shifting demand — and eventually price growth — into markets that were, until recently, comparatively affordable. It’s the same pattern reflected in South Australia, Western Australia and Queensland’s growing share of national market activity.¹

The Australian Institute of Health and Welfare’s most recent figures show the share of mortgage-holding households spending more than 30% of disposable income on housing costs — the standard definition of housing stress¹⁸ — has “increased markedly – from 24% in 2021 to over 40% in 2022–23, 2023–24 and 2024–25.”⁷ A Finder survey of 1,062 respondents puts a similar number on it directly: “40% of mortgagors are paying more than 30% of their income towards their home loans.”⁸

Set that beside what the Reserve Bank and Roy Morgan are saying, and the picture looks very different. The RBA’s October 2025 Financial Stability Review reported that “the share of mortgagors in severe financial stress – where mortgage payments and spending on essentials exceeds their income – remains small and has declined further… [this] has helped to contain loan arrears at low levels.”²⁰ Roy Morgan’s August 2025 survey found only 27.9% of mortgage holders “at risk” of mortgage stress by its measure.¹⁶

These aren’t contradictory findings — they’re measuring different things. The AIHW and Finder figures measure a cost burden: the share of income going to housing, which is a measure of affordability. The RBA and Roy Morgan figures measure insolvency risk: whether households are actually falling behind on payments, which is a measure of systemic risk to lenders. Both can be true simultaneously — a household can spend well over 30% of its income on a mortgage while still meeting every payment, by cutting other spending or drawing down savings. That’s why affordability-focused commentary and financial-stability commentary can cite very different “mortgage stress” numbers for the same quarter without either being wrong.

The Grattan Institute’s Q4 2025 report, More homes, better cities: Letting more people live where they want,⁹ was published in early November 2025 and makes a specific, concrete recommendation: state governments should let townhouses and apartments of up to three storeys be built on all residential-zoned land in Australia’s capital cities, without needing a discretionary planning permit.^9,21 Independent coverage of the report summarised the recommendation the same way: “three-storey townhouses and apartments should be permitted on all residential land.”²³

The mechanism matters as much as the height limit. Grattan isn’t just asking for upzoning — it’s asking for developments that meet clear, published standards to proceed as of right, bypassing the case-by-case discretionary review it identifies as the actual bottleneck.⁹ The report’s diagnosis is that “restrictive planning systems prevent many more homes from being built,”¹⁰ and that the underlying cause of the crisis is straightforward: “we just haven’t built enough homes to meet rising demand.”²¹ Since the turn of the century, the report notes, “growth in the housing stock has lagged that of the adult population… And in that time house prices have exploded.”²¹

Grattan’s central piece of evidence is a zoning statistic: “about 80% of residential land within 30km of the centre of Sydney… is restricted to housing of three storeys or fewer.”¹¹ Sydney is where every strand of this brief converges. It carries the country’s highest house-unit premium, at 77.8%.⁴ It also carries the most restrictive zoning of any Australian capital, with 80% of its residential land locked at low density.¹¹ Grattan’s argument is that this is not a coincidence — that the price premium is the visible symptom, and the zoning restriction is the underlying cause — and that correlation is the evidentiary backbone of the reform case. The report also cites polling support for the idea: 57% of Victorians in favour of change, 43% of voters nationally, and 94% of participants in one national deliberative panel supporting upzoning around train stations.²²

Outside the reports and data releases, the same dynamic has picked up its own shorthand in public discussion: one widely-shared description of the market calls it “literally an upwards wealth funnel”¹³ — land-value gains flowing to existing owners while renters and first-home buyers are priced further out. It’s an informal framing, but it tracks the same mechanism Cotality’s own data describes: a market where the return on owning land is compounding faster than the return on almost anything else available to an ordinary household.

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