The square metre rate of a property is a very important factor – it allows a further indication of value. This month, The Secret Agent Report investigates the volume of space – The Cubic Metre Rate – to see if there are any trends or correlations with regard to pricing.
The Cubic Metre Rate
What are the first things you notice when you walk into a home? Perhaps it is the amount of light, the size of particular rooms, or the stunning staircase in front of you. One thing prospective buyers can often overlook is the volume of the space. Is this important? Most industry professionals would answer yes. However, there is no real data out there to support this.
Positive points can be given to both high and low ceilings. High ceilings allow for better air circulation and a feeling of grandeur, whilst low ceilings can make a room feel more intimate and allow for better acoustics and cheaper utility bills.
Of keen interest to both professionals and buyers is the price of the property. Thus the aim of this report was to establish whether or not the volume of a property has an effect on sale price and if so, how great this effect is.
Volume and Ceiling Height
Tall ceilings are characteristic of old period homes, many quality contemporary homes and warehouse style apartments. A ceiling height of 3 metres and above is considered high. The majority of mass produced apartments and houses built in the 70’s and onwards have lower ceilings with a standard height of 2.4 metres. This cuts the cost of the overall development without reducing the floor size of individual rooms. Further, it allows people to spend their limited funds upgrading kitchens or adding other features. For resale purposes, it would be useful to know whether or not this additional up front cost in building a home with higher ceilings translates to a higher sale price in the future.
Volume and Property Prices
Over the last few months Secret Agent has been measuring and recording the ceiling heights and internal dimensions of properties on the market in Inner city Melbourne. The results were then analysed by examining different relationships between the data to determine if any trends existed. Figure 1 shows the relationship between volume and sale price based on the results of 50 properties. Despite the small sample size a positive linear trend was observed. In other words, as the volume of a property increased so did the sale price. This makes perfect sense. People will pay extra for bigger properties. But, do you pay more for properties with greater volume due to higher ceilings or greater volume due to more floor space?
Volume = Base Times Height
Volume is directly related to the height of a ceiling as well as the size of the floor plan. Either of these could be a dominant factor affecting the sale price. Hence further analysis of the data was required to work out what the market is paying a premium for.
To make the data more useful the properties were arranged in ascending order according to ceiling height and then broken up into 4 groups. The results amongst the groups were then averaged to examine the overall trend between price per square metre for a given range of ceiling heights. In the case of multiple storey buildings, the average height of all levels was used for the ceiling height value.
The results in Table 1 show that the price per square metre increases with each consecutive group (labelled 1-4) of ceiling heights. The only exception to this is in group 1 where the price is significantly higher than what would be expected. To investigate this exception the groups were broken down further into 5 groups labelled A-E and shown in Table 2.
Analysis of Table 2 shows that whilst there is an increase between group A and B, there is a sharp drop in price per square metre for heights in the range of 2.8 metres to 3.0 metres (group C). This indicates good value for money because you will get desirable higher ceilings at the lowest cost per square metre.
The high price per square metre for group A and B indicates low value for money as counter-intuitively a very high price is being paid for lower ceilings. This means that for property buyers, more value can be found in the apparently undervalued ceiling height range of group C. For development purposes, it can be assumed that a high price per square metre can be achieved with low ceiling heights as evident in the high density housing market. However, these findings may be more to do with what is available on the market at the current time. Group D and E show that price premiums can be expected for ceiling heights above 3.0 metres, which as mentioned previously, are considered to be high ceilings.
In both cases, the group containing the properties with the highest ceiling heights had the highest cost per square metre. This effect is seen in the price premium often paid for Victorian style properties with higher ceilings. Although the actual floor space may be smaller than the brick veneer house next door, the Victorian terrace will potentially sell for a lot more due to the greater sense of space created.
To examine this relationship, the price per square metre was plotted against ceiling height. The results of this in Figure 2 reveal that a positive relationship exists. By plotting a line of best fit and taking the gradient it can be estimated that on average you will pay an additional $727 per square metre for every metre of additional ceiling height.
Although it was expected that the price would be dependent on volume, closer examination of the data indicates that price may be more correlated with ceiling height alone than the overall volume. This is again seen if the price per cubic metre is plotted against ceiling height or against square metre. (Figure 3 and 4)
Figure 3 reveals a negative relationship between the price paid per cubic metre and ceiling height. In other words, as ceiling height increases, buyers will end up paying reduced amounts for additional internal volume to the property, which is nice to know if you like your vertical space.
Figure 4 shows a negative relationship between the price paid per cubic metre and the square metre dimensions of the property. As the size of the property increases in terms of floor size, the additional cost for more volume, ie. higher ceilings, tends to reduce. This means that the data indicates that it is less cost effective to have higher ceilings on larger properties and conversely, the price premium for higher ceilings is greater for smaller properties. This can be most easily justified by understanding that in small urban dwellings the only way to increase internal volume on limited floor space is to increase ceiling height therefore making high ceilings very desirable in properties with restricted ground area.
These findings have significance for developers too since they indicate that within the limited volume of a building, the maximum returns in its volume will be obtained by maximizing the per volume cost. The findings in this report indicate that this happens when smaller floor area is combined with a higher ceiling.
Introducing the Cubic Metre Rate
The results can be interpreted in a variety of ways however by simply calculating the gradient on Figure 1, a price per cubic metre rate can be determined. Across the properties for which data was collected it can be estimated that for a property in Inner city Melbourne you could expect to pay approximately $2000 more per cubic metre.
Why is this important?
As the density of Melbourne increases and the demand for space intensifies, the premium on volume will also become greater. Furthermore, greater volumes provide a more natural feel. They also enable the utilization of vertical space as mezzanine levels and additional storage. Greater volumes further allow for better air circulation and the property to stay cooler for longer. In conclusion, whilst there may be a trend towards designing houses with more efficient use of space, higher ceilings do result in higher sale prices.