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The Perfect Ratio of Period Terrace House to Land

Diagram showing the range of ideal land to indoor area ratio in attached and freestanding terraces including an increase in sale price.

Last month, Secret Agent investigated the ‘sweet spot’ in the density of a townhouse. We found that a total indoor area that equalled or slightly exceeded the land area (i.e. 1:1 – 1:1.27) sold at a higher price than denser developments. This time we decided to see what the data says about period homes. 

Our sample consisted of 705 terrace sales across 29 suburbs in inner Melbourne, all of which took place between January and December 2016. A hedonic regression model was used and controlled for area (suburb), sale date, number of bedrooms, bathrooms and car spaces, and size of indoor and outdoor habitable space. Note that the terraces used in this study were in habitable condition or recently renovated. All terraces found to be in dilapidated condition and sold specifically as development sites were excluded.

When analysing the sample as a whole, the best ratio according to the data was between 1:0.3 to 1:0.47. The average land area was a 286m2, while total indoor space only averaged about 110m2. As we are seeing a growing trend of inner city buyers preferring less backyard and more internal space, these results are most likely skewed by a smaller section of the market: the extremely wealthy. In this particular demographic, the focus isn’t about trying to optimise within a budget; it’s about securing a large land holding to build their ideal sanctuary.

To get a more accurate picture, the sample was broken down into freestanding and attached terraces, and the same regression model was applied again.

We found that for freestanding terraces, a 10% increase in the ratio of indoor to land area is expected to decrease sale price by 2.7% on average. For attached terraces, an overall increase in the ratio had no significant impact on expected sale price.

The results are shown in Tables 1 and 2.

 

The real value for most freestanding terraces lies in the land attached to the house, which can be developed or held as a valuable asset by investors. The sample median land area here is 453m2, more than 3 times bigger than the median land size of attached terraces (144m2). For freestanding period homes, the lower the indoor to land area ratio, the better. Even with a ratio of 1:0.36 to 1:0.55, slightly above the ‘sweet spot’, the sale price can be expected to increase by 8.06% over terraces with more than half as much indoor space as land area.

For attached terraces, a sweet spot exists when there is slightly less indoor space than land area. It may be that as further development pushes the average ratio up, these increasingly rare properties start to attract higher price premiums. However, with only a sample of sales from 2016 we cannot determine whether these ideal ratios have been changing over time.

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