New research suggests apartments may outperform houses for long-term capital growth

Apartments are poised to overtake houses for long-term capital growth, according to new research by Nuestar and Hotspotting, challenging the long-held belief that houses on land show superior capital appreciation.

Michael Wilkins, Founder & Director of Property at Nuestar, said the rise of the apartment market is driven by growing demand from various important cohorts, ultimately pushing prices higher.

“Our analysis has found a growing trend of apartment markets that are outperforming house markets throughout Australia, particularly in capital city and inner suburban locations,” Mr Wilkins said.

The research revealed that many of the most promising suburbs for future capital growth across the nation were in locations dominated by units, including Greater Sydney and the inner city areas of Melbourne, Brisbane, and Perth.

Investors have also become more active in the apartment market due to the winning combination of affordability, yields, and capital growth potential.

“All of these fundamentals come together to show that the apartment market is gaining strength as a force for property investment and will continue to do so,” Mr Wilkins said.

Terry Ryder, Director of Hotspotting, noted that the construction of larger and more luxurious apartments specifically for downsizers over the past decade has been a key factor in the evolution of the apartment market.

“Downsizers who want to leave behind the maintenance of a house in the suburbs for something that still comfortably accommodates them and their possessions now have a viable alternative,” Mr Ryder said.

The impact of downsizers on the apartment market is significant, given that the baby boomer generation is in the peak retirement phase and seeking a lifestyle that doesn’t involve being “chained to a lawn mower every weekend.”

In 2023, owner-occupiers still dominated the off-the-plan apartment market, comprising about 55% of buyers nationally, according to Urbis.

The report also identified a notable number of unit-dominant suburbs with rising sales transactions, which generally precede price growth, including Inner Brisbane, Brisbane North, Canterbury-Bankstown, Gold Coast, Sydney City, and Melbourne City.

Mr Wilkins said that in addition to apartment markets recording higher profitability resales, new unit construction is likely to be constrained for several years due to ongoing labour shortages.

“As Australia’s population continues to grow through international migration, this shortage of supply will be a major influence on demand for apartments and the prices achieved in both the sale and rental markets over the next five years,” he said.