Will Units Dethrone Houses in the Upcoming Housing Cycle?

Conventional wisdom says you invest in the land component. 

Conventional wisdom says you invest where families live and rent. 

Conventional wisdom says nice big houses are always the best buy. 

But I’m going to say something controversial. 

Units can be an excellent investment too

I’m not saying large homes with land components aren't still working. Done right the results can be spectacular as our many clients are discovering. 

What I’m saying is units should be in the mix for your next move as well. 

Because here’s what you might not know about units, and why we’re adding them into the mix for our clients. 

#1. They are very affordable. The price point for units is typically lower than for full houses. Of course, there are units at different ends of the scale with some around $300,000 right up to penthouse units overlooking Sydney Harbour for many millions. 

However, overall the price point for a unit is significantly less than for a house. 

This means less deposit required and lower repayments which make it easier to get a loan. And they’re an option to get onto the property ladder if larger, more expensive options are out of reach. 

#2. Higher rental yields. Another reason to consider units is the rental yield. In the latest statistics from CoreLogic, the average rental yield for units across Australia is 4.43%, compared to just 3.48% for houses. 

And the difference in weekly rents between the two asset classes continues to close and currently sits at a mere $36. This means you’re getting almost the same rent for a much less expensive property. 

Without a doubt, it makes it easier to get a loan from the bank because the cash flow is so much higher. And it means more cash flow in your pocket too. 

#3. Surging demand. The National Housing Finance and Investment Corporation (NHFIC) states that within 5 years, the growth of single-person households will exceed all other types of households. 

Units are increasingly popular with singles, divorcees, couples with no children and retirees. Especially since they’re often located so close to popular culture and amenities. By 2041 the ABS predict single-person households will account for 1 in 4 households across Australia. 

Many immigrants will also prefer units over houses because they’re closer to the city for work. 

And who can forget over 700,000 foreign students who find units far more convenient than houses? 

#4. A fall in supply. One of the reasons rents for units are increasing so quickly is supply levels have dropped drastically. While house approvals are only 13% below the 10-year average, units are a whopping 34% below the average. 

Of course, during COVID-19, there was a boom in demand for houses as everyone packed up and moved to nice big houses in the country. But now the trend has to reverse, and this takes time. This is a window of opportunity for investors. 

It is estimated that around 75,000 new apartments need to be delivered a year to keep pace with population growth. And we’ll only hit this target once over the next 4 years, with other years significantly below this number. 

See why we’re starting to recommend well-located, high cash flow units where it makes strategic sense.

Times are changing, and the old dinosaur strategies need to be updated when the opportunity presents itself. And while units were once considered a terrible investment without a future, today they’re emerging as an excellent option for astute investors.