Units outperform houses

Historically houses have enjoyed more capital growth than units but things are changing – maybe permanently.

Over the last few years units have outperformed houses with higher capital growth. And with shrinking household sizes, affordability issues and a rapidly growing population all impacting on Australia’s housing markets, the result is probably not surprising.

The reason houses have traditionally shown stronger long-term growth includes our cultural preference for big homes and backyards, a decrease in developable land and generally better designs available with housing stock.

However as affordability (or lack of it) becomes a bigger issue, units have recorded average annual growth of 7.4 per cent over the past five years compared to 7.1 per cent for houses.
Unit values have increased in value by an average 11.4 per cent in the past year alone compared to 10.2 per cent for houses. In fact the growth for houses has been outstripped by units fairly consistently since April 2008.

Interestingly this is a relatively new trend because if you look back over the past 10 years, houses outperformed units by 1.9 per cent per annum.

Adding to the growing attraction of units is the fact that many are being developed in trendy, sought after inner-city neighbourhoods where demand from young singles and couples, as well as a growing number of family buyers, is escalating rapidly. More families are considering units in these areas, having been priced out of the detached housing market, as they still want to enjoy the infrastructure, employment and lifestyle benefits of living close to a major city.

Another factor pushing up the price of apartments is the lack of new apartments being built. Many developers are struggling to get projects off the ground due to difficulties in obtaining construction finance for higher density projects, as a result of the global financial crisis. Hence, while demand continues to build due to our growing population, supply is dwindling, putting upward pressure on pricing.

Units offer a more appealing alternative for many investors who can obtain higher yields from inner-city apartments than houses, due to the popularity of this accommodation type with younger demographics who show a marked preference for inner-city living. The average gross rental yield is currently four per cent for houses compared with 4.8 per cent for units across all capital cities.

It looks like the trend for units to outperform houses is here to stay. As an investor, what are your thoughts on units as opposed to houses for investment potential and how are your investments currently performing? Please let us know by posting your comments below.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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