Despite the global financial crises, Australia has experienced continuous high-speed growth in housing prices in recent years. Its housing market can be separated into two major segments: single-detached houses and medium-density apartments. This study seeks to examine the price trends of these two segments and explain their differential movements. Based on the Real Estate Institute Victoria (REIV) member agencies survey since the early 1990s, we found that house prices grew faster than apartment prices in Melbourne. In particular, the price gap between houses and apartments was much larger in central Melbourne than in the outer areas. To explain this, we borrow Clapp et al.'s (2012) real option idea and postulate that the gap reflects the redevelopment potential of the houses. We verify this by testing if the gap is smaller for suburbs with stronger redevelopment restrictions (e.g. due to zoning constraints). As far as applicable, other factors such as socio-economic characteristics are also considered. While this study contributes to a better understanding of differential housing price movements, we are aware that the test is delimited by the use of median price indices, which may not hold quality constant. Further study based on constant-quality prices, such as hedonic or repeat-sales indices, are needed.