Affordable properties come at a price

There’s a school of thought that suggests buying affordable property is the way to go for property investors.

The argument goes – there will always be demand for this type of property, especially by young families.29117532 - piggy bank following money to a house isolated on a white background

This has some investors buying houses in the newer or outer fringe suburbs of our capital cities as they read that these are some of the fastest growing locations in Australia.

While I accept that the population in some of these suburbs will double in size over the next 30 years, and they may be a great place to bring up your family, that doesn’t mean that houses in the new outer fringe suburbs make good investments.

Population growth does not necessarily translate to capital growth.

In fact I’ve never considered these areas investment grade locations.

Poor planning

While many new outer suburbs have been planned to be affordable, and may not be expensive in terms of money, they are expensive in terms with travel costs and particularly in terms of health.

The problem is in some estates poor planning has created a dependency on cars as many have poor “walkability” and poor public transport links.

There is also a paucity of parks and open spaces in many new housing estates.

In fact in 2012 a Victorian State Government study showed that some new suburbs in Melbourne (and I can only assume the same applies to some other areas of Australia) are so poorly designed that residents face an epidemic of chronic diseases such as anxiety, obesity and depression that may cause these locations to become the slums of the future.

Of course there are other reasons houses in new estates don’t make good investments:

Residents in these areas tend to have less disposable income than people who live in more affluent suburbs, which means that these regions suffer most in tough times or when interest rates rise.

Also…one of the big factors that enhances capital growth is scarcity, and that’s something missing in these suburbs. 18540769 - piggy bank and house on bowls of scales. isolated over white

Many properties look the same, and there’s always another estate with more land and similar houses just across the road.

Another reason I would avoid investing in these areas is their demographics, as they don’t attract the same demand from a diversity of tenants as the inner and middle ring suburbs do.

Then there is a very low land to asset ratio:

I know some investors buy houses because they’ve heard that land appreciates in value.

But when you think about it, when buying a new house on a block of land in one of these outer suburbs you may be paying $450,000, of which the land (the component which increases in value), could be worth much less than half – say around $200,000.

What’s the alternative?

While many homebuyers still would like to own a home, for them it’s the great Australian dream, an increasing large demographic of young families and older downsizers are trading their backyards for balconies and an inner suburban lifestyle.

In fact in many of our capital city built up suburbs, established apartments have similar capital growth, in fact better capital growth, to houses and currently, with low vacancy rates, investors are achieving higher yields for apartments.

Of course, the rental is not the most important factor; we want properties that are going to grow in value significantly.

What it all boils down to is that as living in the more leafy inner and middle ring suburbs grows in popularity, it will come at a cost – higher property prices and higher rentals.

That’s why I’m buying my investment properties in these locations.

Now here’s what you can do… 17048600 - 3d people - man, person and a red exclamation mark

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Also published on Medium.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit

'Affordable properties come at a price' have 5 comments

  1. September 25, 2013 @ 1:08 pm Theo de Jager

    Dear Michael,

    I’ve read your articles over the years and have found them to be very interesting and well informed.

    You article on affordable housing in outer city areas makes sense, but I have a caveat concerning buying a flat with a view to realising a capital gain. Perhaps you can put me on the right path, but many of the body corporate rates seem to far outstrip comparable costs for a free-standing home. We have had both and we found that the BC costs are far higher, in proportion, than that or our home. They seem to love having expensive managers, some living in apartments for free as part of their compensation, that do not feature with free-standing homes or townhouses without BCs. We do not mind arranging our own insurance and contacting maintenance people as and when needed.

    We also note the fast escalating BC charges in areas such as the far North, due to climate change. The apartments in Cairns and surrounds seem to have dropped around 40% over the past 4 years or so and the BC charges have risen beyond the willingness of people to pay as much. So they sell their apartments, sometimes at huge losses.

    We stay clear of BCs as far as humanly possible.

    So we are looking for the cheapest non-BC properties in the best areas and sometimes those are just not available in or near city centres.

    I would appreciate your comments on this.

    Best regards and thanks

    Theo de Jager
    Cairns/ Sydney/Auckland


    • September 25, 2013 @ 1:23 pm Michael Yardney

      Thanks for the comment and I understand your concerns.
      If you’ve been following my blogs you’d know that I also don’t like paying for excessive body corporate fees.
      That’s why we don’t recommend new properties or high rise development and definitely not where you have residential managers.
      We buy in 2 or 3 storey walk up buildings with no lifts or expensive outgoings.
      In Melbourne and Sydney this type of property has had excellent capital growth as well as superior rental returns compared to houses.


  2. March 19, 2015 @ 6:53 am peter vella

    I would have to stay with the old school thinking on this,simple yet only for few…………either own the whole building and finance your lifestyle with the income,or buy the worst house in the best street ….simple,in my life i have done this and i am 100% sure its the only way to go.


    • March 19, 2015 @ 7:26 am Michael Yardney

      Peter – clearly there is more than one way of making money in property – you’ve found yours -Congratulations


  3. October 21, 2016 @ 11:22 am Hamish

    Its simple maths – the area of a circle = Pi x R^2.

    Meaning if you double the distance from the centre, the area grows four-fold. Its a compounding, not linear, relationship.

    So scarcity grows exponentially as you move closer to the centre.


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