One of the big decisions every property investor faces is whether to make their next investment property a house or unit. To help you decide what makes a better investment, we’ll explore the pros and cons of buying units vs houses.
First, though, let’s explore some Australian Bureau of Statistics data on the performance of houses vs units, which shows that, historically, house prices tend to grow faster than unit prices. Here’s a comparison of how much median price growth each asset class experienced in the 15 years to September quarter of 2021:
15-year price growth: houses vs units
153% vs 108%
Regional New South Wales
147% vs 142%
161% vs 100%
161% vs 162%
103% vs 49%
57% vs 55%
103% vs 75%
Regional South Australia
63% vs 87%
16% vs 19%
Regional Western Australia
20% vs 35%
149% vs 130%
126% vs 99%
60% vs 46%
Regional Northern Territory
86% vs 36%
127% vs 70%
House price growth outperformed unit price growth in 11 of the 15 markets, with the only exceptions being Perth, regional Western Australia, regional Victoria and regional South Australia. In other words, the unit vs house difference is quite large.
That said, if you were to ask “Is a unit a good investment?”, the answer might very well be ‘yes’, for three reasons. First, the price growth stats quoted above are broad averages that hide a lot of individual variation, so it’s possible that a quality unit might produce a better long-term return than a subpar house in the same suburb. Second, if your budget is limited and your choice is between investing in a quality apartment or not investing at all, buying an apartment is likely to give you a better long-term return than parking your money in a term deposit. Third, units might suit you better than houses if your property investment strategy is focused on yield (for cashflow purposes) or buying multiple assets in multiple states (for diversification purposes).
With all that in mind, let’s explore the pros and cons of buying units vs houses.
History suggests that the average house will enjoy more capital growth over the long-term than the average unit.
People generally prefer house living to unit living, so houses have more owner-occupier appeal than units – and owner-occupier appeal is one of the key drivers of long-term price growth
On a related note, now that more employers are embracing remote work and hybrid work arrangements, houses are generally more suitable than units for working from home, further boosting their appeal in the eyes of both buyers and tenants
Houses are easier to renovate than units, because the owner controls the entire property and doesn’t need to get approval from the body corporate.
House owners, unlike unit owners, don’t need to pay body corporate fees or follow body corporate rules.
Houses generally have higher purchase prices than units.
Houses generally have lower yields than units.
Houses generally require more upkeep than units, because they tend to be larger. Also, a house owner is responsible for maintaining the entire property, whereas a unit owner has to maintain only the individual parts of their home (as the common areas are maintained by the body corporate).
House owners need to cover all the costs of maintenance, whereas unit owners get to split part of the cost with the owners corporation.
Units generally have lower purchase prices than houses. (In areas where land values are high, units give investors and owner-occupiers the chance to buy into blue-chip suburbs where houses would be out of their budget.)
Units generally have higher yields than houses.
Units generally require less upkeep than houses.
Unit owners only need to cover maintenance related to their apartment; the body corporate pays for work related to the common areas.
Units generally experience lower capital growth than houses.
Units tend to have less owner-occupier appeal than houses.
Units are generally less suitable than houses for working from home.
Units are harder to renovate than houses, because the approval process is more complicated.
Unit owners need to pay body corporate fees and follow body corporate rules.
While Suburb Help generally believes property investors should favour houses over units, there are occasions when units can be a good investment.
If you are going to invest in a unit, it’s generally best to purchase one that has some sort of scarcity – so a unit in a small block (so small that no elevator is required) will generally produce better long-term price and rental growth than one in a high-rise tower. Also, it’s generally best to buy units that are larger than 50sqm, as banks are reluctant to finance smaller units, which would reduce the pool of potential buyers if you ever decided to sell.
Similarly, if you’re going to invest in a house, it’s generally best to buy one with some sort of scarcity – so you should generally avoid estates with lots of very similar houses.
While the house vs unit question is definitely one that every property investor should think about, a more important question is which location to choose. That’s because, as a very rough rule, location is responsible for about 80% of an investment property’s long-term price and rental performance, while the dwelling itself is responsible for about 20%. Where to buy is more important than what to buy. Once you’ve chosen an investment location, you then need to decide whether to buy a house or unit, and you then need to shortlist suitable properties.
If you don’t have the time or skill to find the right property, you can hire an experienced local buyer’s agent to do the job for you. A local buyer’s agent can find you a property that matches your brief and help you perform the due diligence. Thanks to their local networks, they’ll be able to source off-market properties from local real estate agents. And because they’re local market experts, they’ll know what comparable homes have been selling for so you don’t overpay.
Suburb Help can introduce you to an ethical local buyer’s agent.