Should I buy a house or an apartment?

By October 11, 2017Buying, Investing

The dominant paradigm of Australian real estate has been that houses show better capital growth rates than apartments. The standard argument has been that houses have greater land content than apartments and that while land parcels appreciate, dwelling structures depreciate.

But this is rather simplistic. More pertinent perhaps is the underlying cultural attitude of Australians. The so-called Great Australian Dream of “a home of your own” is based primarily on the image of a house on a block of land.

Gradually that is changing. For many years households have been getting smaller while houses have been getting larger and more expensive. Increasingly buyers are opting for apartments for affordability and lifestyle reason.

 

The market share of apartments is rising steadily.

In 2009, 30% of new dwellings were apartments; by 2012 this had risen to 38%. In February 2015, new building approvals were split 50-50 between houses and apartments. In January 2017, 45% of new dwelling approvals were apartments.

Apartments increasingly are challenging that old paradigm about houses delivering superior capital growth, as more people opt for apartments.

For FY2010, RP Data figures suggested apartments showed better capital growth in Sydney, Brisbane, Perth and Darwin, and similar growth rates in Melbourne and Canberra. APM recorded stronger growth for units in Perth, Darwin and Hobart, but inferior growth rates than houses in Sydney, Melbourne, Brisbane, Adelaide and Canberra.

RP Data also suggested apartments had performed a little better than houses over five years. Units recorded average annual value growth of 7.4% compared to 7.1% for houses – although over the 10 years to 2010 the average annual value growth of houses (9.9%) was better than units (8.0%).

Image result for sydney apartments lifestyle

More recent figures show apartments continuing to challenge houses. In FY2013, according to APM figures, apartments achieved higher growth than houses in the two leading capital cities for price increases, Perth and Darwin. In Perth the median unit price rose 9.3% in the 12 months to June 2013, while in Darwin the unit median increased 10.3%.

Figures published by SQM Research in February 2017 indicate that annual price change outcomes were similar between houses and units several cities. This included price growth leader Hobart, where the Asking Price Indexes were up 12.8% for houses and 13.0% for units. The average situation across the capital cities was an 8% rise for houses and a 6% rise for unit – while the growth over three years was 21% for houses and 18% for units.

The data suggests the rising performance of units is quite recent – and affordability is a key reason. RP Data figures in mid-2015 indicated the typical Sydney unit was $230,000 cheaper than the average house. The differential was $145,000 in Melbourne, $105,000 in Perth, $170,000 in Canberra and $130,000 in Darwin.

 

Households have been getting smaller.

More people choose to live alone or as couples without kids. Some baby-boomers want to downsize. Young adults are happy to live in a small home as long as it’s wired. The average household has reduced from 4.16 people in 1950 to 2.75 people in 2000 and 2.53 people in 2014.

More are opting for units because they’re cheaper and less time-demanding. Media has presented numerous articles discussing this trend. The Australian reported, under the heading Young plump for inner-city pads, that Melbourne was leading “an apartment surge” as young buyers gave up on the idea of owning traditional homes in suburbs.

While the newspaper attributed this largely to affordability reasons, lifestyle choices play as big a part. Often, a buyer’s choice will be a mixture of affordability and lifestyle: a desire to live in a low-maintenance, easy-care home close to work, restaurants and nightlife, at an affordable price.

The Australian quoted Sam Nathan, an apartment specialist with property advisers Charter Keck Cramer, as saying that Generation X and Generation Y saw apartments as their “primary housing option”.

At the same time, The Courier-Mail reported that Brisbane residents have embraced apartment living with the number of owner-occupiers buying units in the inner-city jumping 25% in five years.

 

Government policies will add further impetus.

Most state governments have plans to manage population growth. A central theme is strong emphasis on infill development in preference to urban sprawl. This calls for more medium- and high-density development, particularly around transport nodes.

City dwellers are increasingly using trains to get to work. Petrol prices, road tolls and city parking fees are driving more people to stop driving. Suburbs with train stations will be out-performers in capital growth and units around rail stations are likely to be winners.

Urban renewal programs are a success story. We’re seeing industry removed from waterfront areas and replaced by dwellings.

The purpose of this piece is not to convince you that you should buy apartments. It is to suggest that there is an alternative to the dominant culture of Australian real estate that could be considered.

 

Need more advice?

As one of the longest running agencies covering Ryde and surrounding suburbs, the Snowden Park team know what to look out for when buying in our area. For expert advice on finding your new home, contact us today.

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