Are Australians missing out on life because of soaring property prices?

A recent report by the Australian Population Research Institute said young couples in Sydney were delaying starting a family by as much as four or five years due to unaffordable housing.

Many young families in the capital cities are forced to live in rented accommodation that is close to their work, or near children’s schools. The houses that fit within their budgets are now only available in the outlying suburbs, and come with long commute times, or undeveloped and inadequate infrastructure.

Let’s face it: houses are in short supply, or very expensive if you want them near city based jobs or inner city areas.

The global ‘apartmentification’

It may now be time to consider becoming a part of the global transition to apartment (unit) living.

Melbourne has long enjoyed a reputation as one of the most livable cities in the world, and according to one interesting observation by KPMG demographer Bernard Salt, though the city is an eclectic mix of housing – Manhattan-type, London suburbia, medium density, beach-front, and so on - it is slowly and surely shedding a suburban lifestyle in favour of a more international kind of ‘apartmentification.’

Clearly, Melbourne’s days of quarter-acre blocks are numbered.

So, why should you dump your housing mindset in favour of apartment living?

Units: the financial advantages

The primary consideration is, of course, finances.

The table below compares the median prices of houses and units during April 2016, as well as the capital growth for houses and units during the year 2015, for some of the more expensive Melbourne suburbs.

 

Note that in all cases the unit prices are less than half of houses. Also, growth rates of house prices in 2015 were much ahead of the unit prices in seven out of the 11 suburbs.

This analysis tells us two things: one, that apartments clearly enjoy a price advantage over houses, and two, they are a less risky proposition than houses in the event of a severe market correction.

Another financial consideration is the lower maintenance costs of an apartment compared to a house, as well as the easier mechanics of repairs within an apartment complex. Apartments are also less costly to renovate.

On the flip side, one should take note of add-on levies for apartment block facilities such as swimming pools, gyms and valet services.

Units: Location and social perks

Another crucial advantage of units is their location. With a well-chosen apartment a family can be close to important activities and save countless hours spent commuting. It can remain in touch with family and friends, as well as favourite entertainment spots and cafes.

Says the Real Estate Institute of Victoria: "One of the advantages of higher density housing is that it offers people the opportunity to live in inner-city areas close to the CBD, with excellent public transport and a wide range of amenities at a much lower cost."

Socially, apartment life also comes with the advantage of a network of neighbours and more company for the children. On the flip side, there could a lack of privacy.

Lastly, apartments are also considered more secure than independent houses.

Investment returns

From an investment point of view, apartments are likely to be slower to generate profits because the cost of the land is apportioned over a large number of co-owners.  Note that over the last ten years, while house prices in Melbourne rose 103% to an average of $719,486, unit prices moved up only 64% to a median price of $446,046. However, apartments generally provide higher rental yields.

If you’d like more detailed information on unit prices in an area you’re looking at purchasing in, we can provide a range of reports from RPData to help you with your decision making.  We’ll also provide you with details of the latest mortgage rates and products that are most suitable for your situation and objectives.

Alex Sobolevsky is a Director of Link Mortgage Services, a leading independent Melbourne mortgage and loan specialist.  Alex has a  keen interest in real estate and extensive experience in the intricacies of commercial real estate investing.  Alex and his team have helped many home owners and investors secure approvals, negotiate favourable terms and obtain impressive discounts on their mortgages and business finances.  Visit Link Mortgage Services  for more help.