Should you invest in an apartment or a house?

I often get asked the question from investors “which is better – an apartment or house?”. Of course, it broadly depends on what the investor hopes to achieve from their purchase and depending on their preferred location, the answer is often dictated by budget alone.

Broadly speaking, as a “set and forget” option that promises appreciation over time, it’s hard to beat an apartment close to inner-city amenities. Providing you’re careful with the pre-purchase due diligence in terms of property style and position, apartments generally attract a higher yield, are low maintenance, and when issues with the building do occur, they are generally handled by the owners’ corporation and/or property manager.

However, regularly you’ll read property commentators dictating that apartments perform better in their median data than house prices.  While this may often be the case over the short term, it has not been proven over the long term.  In fact, over a long time frame, median detached house prices have outperformed unit prices, and there are sound fundamental reasons why this may continue.

Apartments have their benefits.  The price of land in inner suburban capital city zones has become so expensive that for a good proportion of buyers restricted in location their budget is hamstrung to this type of property.  However, for the larger demographic, apartments are considered the place where you start out – not end up.

We get bombarded with this idea that everyone is “downsizing” – and once again it’s another excuse by property commentators specialising in apartment sales to promote this option over others.  Everyone’s living alone, they cry! They use previous census data to prove the single-person household is the fastest -growing demographic in the nation.

However, I’d hazard a guess that a good proportion of these single dwellers are comfortably living in houses or town residences, rather than pottering about in a one-, or even two-bedroom apartment – and recent census data proves exactly this.

At 44%, the typical Aussie home still has three bedrooms, and the stats show the majority are occupied by only one or two residents. In fact, only 14% of lone-person households live in one-bedroom dwellings, and there’s been a big increase in the number of four-bedroom homes, which now make up almost a third of the housing stock.

Not only this but, as the latest census results further prove, the single-person household is no longer the fastest-rising demographic. In the 2011 results, lone-person households dropped from 24.4% to 24.3%, while group households (shared accommodation) jumped from 3.9% to 4.1%. This is most likely due to reasons of affordability – renting a one-bedroom inner-suburban apartment can often be more costly than an older three- or four-bedroom detached dwelling a few suburbs out. It makes sense therefore to share, and this trend is mirrored in other international markets – such as the UK and Canada, which produce similar data in their own census breakdowns.

Most of the first-home buyers who cross my path also follow the above pattern.  Rarely do they opt for a one-bedroom apartment – unless they’re restricted to a particular suburb. Most opt to move outwards and purchase something larger and if given the option, would rather rent until they’re able to afford a suitable property for their five- to seven-year needs.  So who’s buying all the apartments?

What we do know is Australia-wide, 58% of apartments are owned by investors. Break this data down to a state-by-state capital city level and the investor-owned percentage of inner-city apartments is closer to 70% and in some states exceeds even this (ABS data.)