Value is governed by demand, and demand for accommodation is changing. The old adage that it’s the land component of property that has value, meaning you should buy a house no longer applies. To a large degree, gen y is forgoing the quarter acre block (did I say quarter acre? The average new plot size is less than 400 square metres) in suburbia for inner city high amenity living, and that’s more often than not apartment living.
Times are changing and it’s those who evolve with it that will survive (survival of the fittest, property edition!).
Apartments vs Houses: The showdown
The blue line in the figure below tracks the year on year growth of houses for Australian capital cities between September 2004 and December 2014, while the orange tracks that of apartments over the same period. Overall the movement of both series is largely consistent, with the most significant difference being that the peaks and troughs of the apartment growth cycle are less extreme than those of the housing cycle. Over the past decade, housing growth has slightly outpaced apartment growth, with the former increasing by 72 per cent and the latter by 66 per cent.
I’m sure some of you reading this now will be thinking: ‘I’d rather buy a house and make the additional 6 per cent over ten years.’ Here’s a couple of reasons why a point of view like this fails to take into account the investment big picture:
- Rental yields for apartments are approximately 20 per cent higher than those for houses
- Depreciation benefits are likely higher on an apartment than they are for a house
- Maintenance costs on apartments are lower than they are for houses
Final thought: the total return for apartments when accounting for just the rental yield disparity is actually higher than it is for houses.
Nothing of what I’ve written above is meant to paint the picture that houses don’t make good investments. Blue Wealth is proactively searching for the best investments for our clients, be they apartments or houses.
