These factors will have a huge impact on Australian apartment prices

Despite a remarkable 14.2% year-over-year increase in flat prices in Australia, according to JLL, this gain is still less than half that of detached homes.

"This discrepancy is for excellent reasons. Record-low loan rates, financial incentives like HomeBuilder, and first-time homebuyer discounts have all contributed to the housing market's recovery. While the apartment market in many regions of the country (especially Melbourne and Sydney) was also still absorbing the tail end of the last supply cycle, all of these had a stronger initial impact on detached house demand, according to JLL's Leigh Warner.

Here’s more from JLL:

As a result, the price difference between detached homes and apartments has grown. In November, there was an average 37% disparity between home and unit prices throughout the major metropolitan cities, up from 30% over the previous year and ten years. From 27% in Perth to 43% in Canberra, the difference. The margin is significantly greater than the average over the previous ten years in all markets, and it is especially wide in Brisbane (41%) as well.

Even while the affordability difference is substantial in the majority of markets, in other areas the affordability issue is solely due to detached property prices, which are prohibitively expensive for buyers with typical incomes. The median price of a detached home in Sydney is $1.36 million, making this the most obvious example, but it is also the true in Canberra and Melbourne, both of which are swiftly approaching a $1 million median. Furthermore, the majority of first-time homebuyers are now unable to afford typical "house and land" packages due to the sharp increases in build costs, quick increases in the price of greenfield property, and winding back of first-homebuyer incentives.

There is some evidence to suggest that these price pressures are increasing demand for flats. Over the coming years, we anticipate that this pressure will increase and become more pertinent across all markets.

This pattern will be reinforced even more when mortgage rates do eventually rise, which will drive more buyers away from detached homes. The steps already made by APRA to tighten borrowing assessment criteria and any more steps taken would also restrict borrowing capacity and force more purchasers back into attached dwelling pricing levels regardless of when interest rates do rise.

The affordability of the demand for apartments will be further aided by the opening of borders, the return of immigrants and international students, as well as the ongoing increase in investor demand. In addition, the amount of new supply entering the flat market during the following few years will continue to be modest. This will result in a quicker absorption of any excess flat supply, especially in Melbourne and Sydney.

Together, these variables are anticipated to create medium-term price pressures for flats and support significant price increase over the following few years, even while detached home prices stabilise. As a result, we anticipate that over the coming years, the price difference will once again reduce.