Houses vs Apartments: Which will perform better over time?

April 8, 2020
Houses vs Apartments: Which will perform better over time?

About David Hancock

David is the Founder and Managing Director of Binnari Property, a team of independent, ethical and reliable property investment professionals, who specialise in researching and providing advice on residential real estate investment properties for clients.
www.binnari.com.au

House vs Apartment

The house vs. apartment debate is not as simple as it seems. If you’ve always been under the impression that houses are better for growth than apartments, the below is sure to challenge that perception. Price movements are a result of the imbalance of supply and demand. Despite the general consensus, property price growth is not exclusive to either a house or an apartment. It’s driven by the balance of supply and demand in a specific location.

Understanding demographic shifts and identifying future demand is critical to buying the right type of property. As our household sizes in our capital cities continue to shrink, property demand is changing. For an investor buying a house in the ideal suburb isn’t always possible from an affordability perspective. But with the right research and guidance, the same results can be achieved at a lower purchase price, with a stronger cash flow and arguably stronger growth potential.

The graph below tracks the movements in median house and apartment price in Brisbane since December 2003.

The last growth cycle in the Brisbane market occurred between 2003 and 2009. Here’s how apartments and houses fared over that period.

Brisbane Growth Rate 2003 – 2009
Apartment 80.8%
House 82.7%

The performance of both markets was essentially in line. That’s not too mention that rental yields on apartments are approximately 20% higher than those for houses.

If we refer back to the graph we can see that the last 3 years have seen houses outperform apartments. This is largely because of an increase in apartment supply in specific areas causing saturation, thus leading to price declines. These falls have been detrimental to the overall apartment performance of the city. However, there are many suburbs within Brisbane which have less exposure to supply risk and their performance has remained positive.

Market Performance

Brisbane’s not just one market, there are many micro-markets within the city. The key to investing is understanding the capital city cycles but also having a deep understanding of the markets within that market. Let’s take a look at two Brisbane suburbs:

Ascot

  • 7 kilometres from Brisbane
  • Median house price of $1.57 million
  • Median apartment price of $495,000
  • Currently 102 apartment dwellings under construction

Hamilton

  • 7 kilometres from Brisbane
  • Median house price of $960,000
  • Median apartment price of $490,000
  • Currently 665 apartment dwellings under construction

Although median apartment prices are in line, the Ascot apartment value proposition is much stronger, highlighted by the significant disparity between house and unit prices. This will drive apartment growth. The other key difference is the amount of supply. Although neighbouring each other, these are two completely different markets.

As a result of minimal supply, Ascot’s apartment market performance has been quite consistent, as seen below.

In markets with low supply we find that the apartment market performs just as well as the housing market. We collected sales data from homes and apartments which were bought and sold at the beginning and end of the last growth cycle to determine which performed stronger. To compare each property’s performance, we’ve annualised the growth rates achieved.

Address Sale Price Sale Year Resale Price Resale Year Compounding annual growth rate
Apartment
2/1 Napier St $230,000 2002 $410,000 2009 8.61%
3/70 Beatrice Tce $140,000 2000 $350,000 2008 12.4%
6/90 Racecourse Rd $224,000 2000 $475,000 2008 9.85%
Houses
62 Abbott St $550,000 2000 $1,200,000 2009 9.0%
100 Beatrice Tce $360,000 2001 $640,000 2009 7.4%
8 Bale St $1,650,000 2003 $2,100,000 2009 4.1%

 

Conclusion

This isn’t to say that we don’t support investing in houses. In fact, our offering is diverse, and our property selection is not dictated by a specific property type. We’re led by our research and our understanding of specific markets.

This research illustrates that research is far more important than perception. With the right guidance and an understanding of the market dynamics, the opportunity for growth is present in both the apartment and housing markets. The only difference in performances between the two property types is recognised when the investor lacks the knowledge to identify where the opportunities lie.

David Hancock
David is the Founder and Managing Director of Binnari Property, a team of independent, ethical and reliable property investment professionals, who specialise in researching and providing advice on residential real estate investment properties for clients.
Share this article
soho-logo-Hoz-Light
Want the latest real estate news in your inbox?
Just let us know your email and we will do the rest

Latest

Let us Find your next Dream Home

Our AI will create a personalised list of property matches for you to rank from over 100,000 available listings

Let us Find your next Dream Home

Our AI will create a personalised list of property matches for you to rank from over 100,000 available listings