Sydney Supply Mismatch as Buyer Budgets Fall Short

Sydney’s residential market is revealing opportunities for developers as online searches for apartments surged by 94.3 per cent over five years while new listings grew by just 7.5 per cent, in what has been labelled “a massive mismatch”.

Domain chief of research and economics Dr Nicola Powell said it “reflects the ongoing transformation of Sydney’s housing market, particularly when looking at the higher demand for units relative to supply, driven by affordability pressures”.

According to Domain’s latest market analysis report, the mismatch between supply and demand is most pronounced near Sydney’s centre, where house prices exceed buyer search parameters by $450,000, townhouses by $200,000, and apartments by $50,000.

“The aspect of the report that fascinated me the most was the difference between price in terms of what buyers were searching for versus what was being supplied,” Powell told The Urban Developer.

“Buyers’ budgets are not meeting sellers’ asking prices due to strong demand and lack of medium and high-density housing supply across Sydney, and this is especially pronounced in premium areas closer to the CBD or coastline, where properties are tightly held.”

This disparity eases with distance from the CBD, where buyer search prices overtake listing prices at the 20km mark for houses and 10km for apartments.

The report identifies several regions where house searches significantly outstrip supply—Sydney Inner City, Botany, Parramatta, Auburn and North Sydney-Mosman demonstrate search-supply ratios more than double the typical Sydney area.

In areas including Wentworth Point and Rhodes, apartment searches comprise 58 per cent and 56 per cent of property searches respectively.

The report indicates a preference for waterfront locations along the Parramatta River that override traditional housing type preferences.

Townhouses represent a limited portion of available stock, leading to supply imbalances across many areas. Powell suggests this may be a particularly compelling development opportunity.

“Townhouses had no geographical bias, which showcases that buyers will consider a townhouse irrespective of the location,” Powell said. “It is a great solution in various areas across Sydney.”

Demographics were driving significant market shifts, said Powell. The proportion of Sydney residents aged over 65 years living in apartments had reached 19 per cent, with this age group projected to double over the next 40 years.

This demographic transition was reshaping development opportunities, particularly in established suburbs.

“In time we may see prime locations where you will see a house bulldozed and two or three or four terraced homes being put in place,” Powell said.

“That generational transfer and land becoming available gives us an opportunity to think about zoning and how we create the right density in the right places.”

▲ Domain chief of research and economics Nicola Powell.

Price growth disparities might be changing perceptions about housing typology, Powell said.

“When you look at the five-year change of house prices and unit prices, houses have gone up 53.6 per cent in Sydney and unit prices have gone up 15.1 per cent,” she said.

“Looking at that citywide picture, you can see the disparity of the change in affordability and how it’s impacted people’s options and ability to purchase.

“I think it’s deeply rooted that Australians view the first dream home as a detached house, but I think that is morphing. At just over $1.6 million in terms of median price, a house is more out of reach. And so, townhouses offer an affordable alternative.”

Domain’s proprietary data showed search behaviour, what buyers were looking for, what they could afford and what’s available.

This presented insights for developers and policymakers, said Powell.

“When somebody is looking for a property, they often go on a multi-journey. They consider multiple property types to see where they can buy. And I think that showcases how Sydneysiders—and Australians in general—are becoming more open-minded to housing typology.”

The data might suggest opportunities for developers to address supply shortage, particularly in medium and high-density housing sectors.

She’d like to see developments that align with current buyer preferences, especially in areas where unit searches were highest.

“We know Sydney is unaffordable. So, it really shows that we do need to think about density in the right places. Despite being one of the world’s least dense global cities, Sydney faces crucial decisions about future development.

“In those inner-city locations and middle suburbs, where land is premium and finite, it’s about effective use not only of the housing stock we’ve currently got but also the land available to us.”