Two bedroom cottages in Melbourne

Melbourne’s inner 10km radius suburbs boast many beautiful properties; specifically turn-of-the-century worker’s cottages within the suburbs closer to the CBD. Back in the late 1800’s our inner suburbs were not necessarily home to the wealthy. Our more affluent families sought their family homes on larger blocks in the likes of Malvern, Armadale and some of our other beautiful, leafy eastern suburbs.

The humble two bedroom cottage was a cheaper alternative for workers who needed the convenience of a cycling or walking option closer to work, and the tiny land allotments aided the cost-effectiveness of the home.

Many of our inner suburban streets are adorned by consistent arrays of Victorian and Edwardian ‘single fronted’ cottages, and with the support of our local urban planning authorities, many have been suitably protected with heritage overlays now.

The overlays aim to preserve the history and significance of these beautiful dwellings.

Winding the clock forward and venturing through the seventies, eighties and nineties, our city experienced an exciting amount of gentrification in all of these areas. Suddenly the cottages that were once home to the humble worker were being snapped up by excited boomers and generation X’ers as they embraced the desire to live closer to our city in a stylish slice of history.

The humble Victorian terrace is now a revered and aspirational dream for many.

Restorations, additions and internal refurbishment projects were a common interest and our real estate market reflected the uptake in these types of dwellings. This century hasn’t shown a waning interest either; in fact, our generation Y and Millenial buyers have enhanced the demand in several ways, but namely waiting longer to have a family and number of children per family being a reduced number.

A two bedroom cottage is typically a more feasible option for a single, couple or one-child family, and our demographic changes since 2000 deem this type of a dwelling a more suitable option, and for a longer tenure.

It is of little surprise that the demand for them has been so consistently strong.

Interestingly, when COVID-19 hit our shores, we did experience a dramatic uptake for three and four bedroom dwellings as aspiring family buyers increased their room count in an effort to accommodate a designated place to conduct their work from. For a brief moment during 2020, we wondered if the demand for larger dwellings would eclipse the demand for two bedroom single fronted cottages and terraces, but the observations at the coal face didn’t seem to show buyer resistance in the two bedroom cottage market.

In fact, 2021 saw a strong uptake across the whole housing market, (two bedroom cottages included) as our property prices continued to surge following our lockdown ending in November 2020.

This Lockdown_6.0 study aimed to look closer at the 8km radius suburbs around our city, and to specifically identify the capital growth rates over a 20-40 year period for these types of dwellings. More so, I wanted to cast a spotlight on the most recent growth to explore the heightened demand and question why two bedroom cottages are flying in the face of our work-from-home adaptation.

The study circles in on two bedroom, period cottages (Victorian and Edwardian; built between 1880 – 1915), within an 8km distance to our CBD, and showing at least four consecutive sales over no greater than a forty year period, and all exhibiting their most recent sales transaction in 2021.

My six samples include; Albert Park two in Brunswick, Fitzroy North, Prahran, and Yarraville.

It is fair to say that each of them, at some stage, will have been renovated and/or improved. However, all remain two bedroom dwellings and each have sales data spanning a generous enough period to show a fair comparison.

The incredible thing to note is the outperformance capital growth story of each. None of these dwellings were handpicked based on their strong growth. In fact, they were the first and most recent sales in my selected pockets to demonstrate the minimum number of data points I established for the study requirements.

The results are in and I’ve detailed some points of interest for each sample.

Albert Park shows a strong result, coming in at just over nine per cent as an averaged year on year capital growth figure. Interestingly, Albert Park, South Melbourne and Middle Park were very difficult to find a suitable sample within, as the tenure of ownership was noticeably larger in these suburbs. There were very little 2001 sales samples I could find that showed a history of more than one or two sales over a forty year period.

That makes sense when I consider how infrequently these properties come up for sale.

Meanwhile, Goodman Street Brunswick shows steady growth on this chart which spans five consecutive sales. Eight per cent year on year doesn’t quite match Albert Park’s (above), but it’s still very much an outperformance figure by any analyst’s measure.

Meanwhile, just down the road, in this enviable southern pocket of Brunswick, only a month after Goodman Street above, this superb property in Munro Street sold. Clearly this was a recent renovation, and offering a study nook area and an ensuite, it’s of little surprise that the uptick in sales value for the last transaction is so sharp. It would be unfair to apportion this enormous capital growth rate to the property blindly, when it’s clear that a suitably strong renovation budget would need to be overlaid. Nevertheless, it’s a compelling sale result in the midst of a working-from-home era for this lockdown city.

Next, we explore Fitzroy North; home to the uber-cool, and more recently, the cashed up baby boomers who are seeking a ‘lock and leave’ city pad to complement their coastal option. This beauty on Best Street, Fitzroy North illustrates perfectly how the suburb has performed over the last two decades in particular.

Swinging around to the inner south/east takes us to Prahran; an eclectic suburb with a mixture of large homes, social housing in number, medium density townhouses, high density modern apartments, and many beautiful two bedroom cottages. This buzzy suburb attracts a young crowd and the shops and cafes reflect this young professional demographic. Surprisingly, this property on Aberdeen Street doesn’t appear to have undergone a recent renovation. The demand for such cottages is exacerbated by a critical stock shortage. The extreme capital growth figure of 10.5% year on year is astounding. Prahran is home to a large hospital, (The Alfred) and aside from young professionals, the medico fraternity often target dwellings such as this too.

Last, but not least is Yarraville; a friendly suburb with a magical village in Melbourne’s inner-west. Admittedly, the semi-dated conversion in O’Farrell Street incorporated a tight study area, separate from the main living area, and no doubt a layout of this design would suit a work-from-home employee. The chart is an interesting one as we look back over the multiple sales transactions. The negative price movement is unusual when mining historical data for these types of dwellings. My study covered a large number of these types of dwellings and I didn’t see many price contractions. This one could be related to the dot.com crash, but I’m just speculating. The quick sale suggests a financial dischord of some type of that owner in 2000.

The findings of my study have been interesting on many fronts. Firstly, and most importantly, the capital growth has been particularly strong. All have eclipsed eight per cent and some have touched double digit, averaged yea on year growth.

Importantly though, the demand for two bedroom period dwellings in the inner-ring of our city doesn’t appear to have dropped. I’ve polled buyers, property managers and agents alike to understand why this is the case in a pandemic that requires us to work from home.

• Most buyers and renters are happy to clear out the second room and utilise it as a study. The idea of friends staying over, particularly during a pandemic, is a distant thought. Spare rooms are almost always under-utilised anyway, and people know it now that a study is more important.

• Family buyers aren’t really targeting these types of dwellings, but single professionals and professional couples are.

• Investors are back in force and they are also targeting these types of dwellings. This is mostly related to budget constraints and cashflow, as a three or four bedroom option in these suburbs is likely more price-prohibitive for an investor. The comparatively lower rental yields for a larger property also compound the challenge for an investor.

• Aspiring home owners who can afford these beauties appreciate their scarcity.

• People do still value being close to the city, whether it be for their work, their village, the city lifestyle or easy connectivity to their friends and family.

I do have some valuable tips for buyers and investors who are targeting these gems. Floorplan does count. An integrated kitchen/living/dining is great, but a separate lounge away from kitchen and dining is valuable for a work-from-home point of view, where distractions, noise and the kitchen bench don’t have to feature in the zoom call.

A study nook is valuable too.

Pay attention to the existing layout. If the wet areas and living areas are broadly where most people want them to be, it makes for an easier and cheaper upgrade/renovation when the time comes.

Natural light is important, so attention should be paid to orientation.

A quiet location, (as opposed to a busy main road) counts for a lot and bolsters the chances of a high-demand property into the future.

Easy street parking is a must for those of us who have cars and want the ease of vehicle amenity while working from home.

Special shout out to all of my Victorian real estate buddies who are doing it tough in Lockdown6.0. Special thanks to those of you who have helped with this study.