Buying an Apartment or a House
Date: 19/09/11
It’s the perennial question from investors: What makes the better investment – a house or an apartment? Surprisingly for some investors and industry commentators, recent reports from RP Data and other agencies show apartments and units have outperformed houses in recent times. Houses and units have grown at similar rates over the past decade.
The national median house price increased from $183,100 to $458,100, or 150.24% over the past 13 years. The median unit price gained d from $153,200 to $373,700 or 143.93% over the same period, slightly outperforming houses since the mid-2003.
But the numbers are changing. The past 12 months, apartments are racing ahead of houses particularly in Sydney where house prices remained virtually unchanged and apartment prices have increased. The figure is small but it’s the relativity which counts.
Baby Boomers are increasingly downsizing to smaller dwellings as they come into their retirement years, this has changed the demand for properties in many pockets across Australia, examples of this include Cabarita and Breakfast Point in Sydney’s inner west. The most compelling trend unravelling is the increasing number of people living alone, adding to reasons why we have seen units doing well in recent years.
According to the Australian Bureau of Statistics’ Household and Family Projections, there were 1.8 million Australians living alone in 2001 and this figure is expected to balloon by between 57% and 105% by 2026.
It is clear that the old rules about land and house being a superior investment to apartments may no longer apply. But how could an apartment – without its own land – outperform the Australian dream of a house with a backyard?
First and foremost is the perennial issue of supply and demand. An increasing number of Australians of all ages, renters and home buyers, want the lifestyle associated with an inner-urban lifestyle. In part, this is a rejection by some of the long commute to work and the paucity of services found in many outer suburban areas. It’s also about amenities such as access to hospitals, schools, parklands and recreation facilities.
Demographic factors: The most important change we are seeing demographically is the long term decline in average household sizes. The graph shows a significant decline in household sizes every 20 years for the last 100 years. Early in the 1900’s there was an average of 4.5 people in every household, in 2009 there was an average of 2.53 people in every household in 2009, and thus there are many more dwellings in demand on a per capita basis. In 2009, the Australian population was roughly 22,065,700 people, 451,900 more people than in 2008. With an average of 2.53 people in every household in 2009, extra 178,616 dwellings needed to be built. This represents a dramatic surge of 167.5% in the number of dwellings constructed to house Australia’s rapidly increasing population.
That will underwrite future apartment demand for decades to come.
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