Why landlords overwhelmingly favour units: Tim Lawless

Nationally, 58% of flats, units and apartments are owned by investors. That is quite an amazing statistic, especially when you compare that detached houses only 21% are investor-owned.

Across the capital cities the proportions are even higher. Darwin tops the list, with 70.6% of all units being rented, followed by Brisbane where 70.2% of all units are rented.

The lowest proportion, 60.3% in Sydney, is still significant. I would presume Sydney’s proportion is probably lower due to the city having the highest house prices (more owner-occupiers choose units over houses thanks to the lower entry price), as well as the fact that Sydney is the most mature unit market in the country.

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The high rate of investor ownership of apartments begs the inevitable question: why?

Itt partly comes back to price points. The unit market generally offers a lower buy-in price (investors face affordability hurdles too!) than detached or semi-detached homes. Based on median selling prices across the combined capital cities over the June quarter, units are 12% or $59,000 more affordable than houses. The gap is widest in Sydney, where unit prices are almost 23% or $139,000 lower than house prices.

Another valid reason is the fact that rental yields have historically been higher for units compared with houses. The latest RP Data-Rismark indices show unit yields across the combined capital cities are currently at 4.9%, compared with 4.2% for detached houses. In fact, across every capital city, rental yields on units are higher than yields for houses (except Darwin where both are at 6.1% which are the highest rental yields across the capital cities).

Finally, it is often the case that units are located in more popular locations for both renters and owner-occupiers. The majority of unit developments are located close to transport networks, major working nodes and retail amenity.

The high proportion of investors really doesn’t come as a surprise!

Tim Lawless is national research director of RP Data. 

Photograph of Sydney apartment block by Michael Verhoef, courtesy of Flickr.