Australian cities that have increased the density of their housing stock are benefiting from more affordable housing, new research shows.
Without urban densification over the past two decades, new research suggests house prices in Perth would have been nearly 45 per cent higher.
Domain analysis of house prices and dwelling size found the shift toward smaller blocks as people pack into Australia's major cities have been effective at containing price growth.
Greater density makes homes more affordable by boosting the total housing stock and opening up more opportunities for people to get into home ownership.
Domain's research found that if blocks had stayed the same size over the past 20 years, buyers would be paying 16 per cent more for a home in Adelaide, 14 per cent more in Melbourne and 7.3 per cent more in Brisbane.
Densification had done less to contain prices in other cities, limiting growth by six per cent in Darwin, 5.5 per cent in Sydney, 2.9 per cent in Darwin and 2.6 per cent in Canberra.
Australian cites were still among the least dense in the world but popularity of urban centres was leading to greater competition over finite land, Domain chief of research and economics, Nicola Powell, said.
The need to accommodate growing populations while land premiums increased was leading to greater densification and a decline in average land size.
"While it might seem surprising, this shift is essential for preserving and improving housing affordability for the broader population," Dr Powell said.
All cities have been trending towards greater densification but Perth has experienced a rapid decline to reach a record low land size of 480 square metres, 10 per cent lower than Melbourne.
Declining land sizes had contained the house price in the city but without the shrinkage, house prices would have been $300,000 higher today, Dr Powell said.
In Sydney, land size reduction lagged the other five biggest capitals and the result was a smaller difference in price as a product of urban density.
Buyers would find themselves paying more for each house without declines in land sizes fuelled by the need to make cities denser, Domain found.
“Land is finite and we need to ensure it is provided at low cost and utilised efficiently," Dr Powell said.
The density conversation could "create a little bit of fear" among Australians worried about the changing shape of suburbs, she said.
"But it comes in a variety of different forms - it's not just high rise in terms of apartments and units, it's also the missing of affordability, so it's terraced housing, townhomes, dual occupancies."
"And we've got to remember that Australia is home to some of the least densities in the world, and also home to some of the most expensive property markets in the world."
