Will family-friendly apartments make good investments in the future?

The way we live is changing, particularly in Sydney and Melbourne – which means the way we invest in the property needs to change, too.

As our world adapts to a new, post-COVID reality, the preferences of property buyers are evolving.

Prior to the onset of the pandemic, more and more Aussies were trading their big backyards for balconies and courtyards and moving to apartments.

Why would they give up the Great Australian Dream of the quarter-acre block with a Hills Hoist?

Because they were trading extra space, for convenience and access to amenities in the right place.

It’s that old real estate adage that has held true since contracts were signed with quill and ink – location, location, location.

So will family-friendly apartments be the in-demand property goldmine of the future?

Why families are ditching backyards for balconies

Apartment living for families is a relatively new phenomenon in Australia, despite being the norm in many big cities across the world.

In Europe, Asia and even the USA, families think nothing of being packed like sardines into tiny apartments.

Thankfully in Australia, we have the space and ability to create spacious apartments that have all the best features of a home, without the maintenance.

As real estate in our city centres became more expensive, and spacious older properties are demolished to make way for apartment blocks and townhouses, our idea of the perfect home is changing.

Many families are deciding it is worth sacrificing a little space or a big backyard in order to be closer to good schools, local cafes, dining and entertainment precincts and their workplaces.

Since the pandemic, the local neighbourhood is becoming more important, and people really value having all the amenities and conveniences we’re accustomed to within 20 minutes of our front doorsteps.

And then, there’s the affordability.

House prices soar, while apartments linger

While our housing markets have been booming for well over a year now, the same can’t be said for apartments and units.

Houses have consistently outperformed apartments in terms of capital growth, growing in value by 22% in the 12 months to September 2021.

Units, on the other hand, gained 12% - still a fantastic growth of rate, but almost half the level of houses.

The gap between house and apartment prices, particularly in Melbourne and Sydney, hasn’t been this wide for a long, long time.

In some of Australia’s most high profile suburbs, unit prices are just over one-fifth of house prices in the same neighbourhood, according to CoreLogic.

This means the average house price is around $3m, while the average apartment is $600-$700,000.

In terms of price growth from an investor’s perspective, apartments have underperformed houses for much of the last decade.

This is due, in part, to the construction of many new large-scale developments, which has meant the supply of new units has outweighed demand and put downward pressure on unit values over time.

But moving forward, many apartment dwellers will have difficulty upgrading to a house because of the stark difference in affordability.

For those couples who’ve purchased an apartment before having a family, upgrading to a house could be out of their reach by the time kids come along.

As a result, there will be an increasing demand for larger, more family-friendly apartments, and the requirement to live in a great neighbourhood will remain important post-covid.

Which apartments will be in hot demand

Well-located, established apartments and units in middle-ring suburbs will be increasingly in demand.

They should be in smaller boutique blocks – think a small complex of six to 10 apartments, rather than huge big-box buildings with hundreds of similar style properties.

The other thing to keep in mind is that increasing construction costs, and the fact that builders of apartments will need to be more careful to avoid the common problems they’ve encountered in recent years, will mean that building new apartments will cost significantly more.

All of this means that the established family-friendly apartments that are available for sale today are priced well below their intrinsic value.

Moving forward, APRA’s moves to tighten lending will impact buyers’ budgets.

This, together with the increasingly challenging task of saving a deposit, is likely to translate to more buyers who will consider townhouses, villa units and family-friendly apartments as affordable alternatives to freestanding houses.

The bottom line

Townhouses, villa units and the right types of apartments will be great investments over the next decade, especially considering the current affordable entry price.

My advice to investors is to avoid:

• Packed high-rise towers and apartments
• Locations right in the thick of the CBD – they’re over-supplied and have low growth drivers.
• Highly-featured complexes with lots of shared spaces that are expensive to maintain, like lifts, pools and gyms

Instead, I suggest you look for larger apartments and units in middle-ring suburbs, which are close to good schools, parks and cafes.

Throw in some good public transport links, and you’ve got the ideal investment for the Australian family of the future.

ALSO READ: Warning: Steer clear of inner-city apartments

About Michael Yardney Michael is the founder 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.