Apartments vs Houses: Which Investment Property Delivers Better Returns?

The Performance Gap: What the Data Shows

Historically, houses have significantly outperformed apartments in capital growth across most Australian markets.

Key performance trends:

CoreLogic data shows that over the past 20-30 years, houses have consistently delivered higher annual growth rates than apartments in major capital cities. While individual years may vary, the compounding effect of this performance gap creates substantial wealth differences over time.

Why this matters for portfolio building:

A house growing at 8-10% annually creates significantly more equity than an apartment growing at 4-6%, and that equity is what funds your next purchase.

For investors focused on scaling to multiple properties, this performance difference can be the factor that determines whether you build 3 properties or 7 properties over a decade.

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Three Structural Forces That Hold Back Apartment Performance

1. Oversupply Risk: Too Much Stock, Not Enough Demand

The biggest risk facing apartment investors is oversupply, and it's happened repeatedly in Australian cities.

Recent examples:

Major cities like Sydney, Melbourne, Brisbane, and the Gold Coast experienced massive apartment construction booms in the mid-2010s. Entire suburbs were transformed into high-rise communities, creating excess stock that put downward pressure on both capital growth and rental returns.

The data tells the story:

Greater Sydney saw apartment approvals flood the market throughout the 2010s, leading to significant underperformance in unit prices. During the same period, regional NSW, with far fewer new apartment approvals, saw apartments actually track closer to house performance because oversupply wasn't an issue.

Why this happens:

Apartments are easier to build in volume than houses. A single development approval can add 100-200 apartments to a suburb in one go. When multiple developers target the same area simultaneously, supply quickly outstrips demand.

The investor impact:

When you buy into an area with heavy apartment development, you're competing against brand new stock with modern finishes, better amenities, and builder incentives. This makes it harder for your property to appreciate and can suppress rental growth for years.

2. Building Depreciation vs Land Appreciation: The Hidden Value Drain

The fundamental driver of long-term property growth in Australia is land appreciation, not building value. This is where the apartment-house gap becomes structural.

How value is distributed:

• Houses: Typically 60-80% land value, 20-40% building value
• Apartments: Often 5-15% land value, 85-95% building value

Why this matters:

Buildings depreciate over time. They age, require maintenance, and become functionally obsolete. Land, by contrast, is the scarce component that appreciates as population grows and demand increases.

The compounding effect:

Let's compare two $700,000 properties over 10 years:

House Example ($700,000 purchase):

• Land component: $490,000 (70%)
• Building component: $210,000 (30%)
• Land appreciation: 8% annually
• Building depreciation: 2.5% annually
• Result after 10 years: approximately $1.22 million (74% growth)

Apartment Example ($700,000 purchase):

• Land component: $105,000 (15%)
• Building component: $595,000 (85%)
• Land appreciation: 8% annually
• Building depreciation: 2.5% annually
• Result after 10 years: approximately $700,000 (minimal growth)

The apartment shows virtually no price gain because building depreciation largely offsets the much smaller land-driven appreciation. Meanwhile, the house captures significant value growth from its larger land component.

This is why houses compound wealth faster, they're leveraged to the appreciating asset (land) rather than the depreciating one (building).

3. Ongoing Holding Costs: The Cash Flow Drain

Apartments come with recurring costs that don't exist for houses, primarily strata fees (also called body corporate fees).

Buildings with extensive facilities like pools, gyms, concierge services, and lifts typically have the highest strata fees.

Additional risk: Special levies

Beyond regular strata fees, apartment owners can face special levies for major building works like:

• Building defect rectification
• Facade repairs
• Lift replacements
• Fire safety upgrades

These can run into tens of thousands of dollars per owner and are largely unpredictable.

Houses avoid this entirely. While houses have maintenance costs, the owner controls when and how much to spend, rather than being subject to strata committee decisions.

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The Better Question: What Performs Best at Your Price Point?

The affordability trap:

Many investors choose apartments because they're "affordable" compared to houses in major cities. But affordability without performance doesn't build wealth, it just locks your capital into underperforming assets.

The alternative approach:

At the same price point as a Sydney or Melbourne apartment ($600,000-$800,000), you can often buy detached houses in strategic regional markets that offer:

• Larger land components (60-80% vs 5-15%)
• No strata fees
• Lower oversupply risk
• Stronger growth fundamentals

Certain regional Australia property markets had low median house prices in 2015 and still delivered strong growth through 2025. 

These markets offered houses at similar or lower prices than major city apartments, but without the structural headwinds that limit apartment performance.

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Making the Strategic Choice for Portfolio Building

When deciding between apartments and houses, consider these strategic factors:

Capital growth potential: Houses typically deliver stronger compounding returns due to larger land components.

Equity creation: Faster-growing assets create more usable equity for scaling your portfolio.

Cash flow management: Avoiding strata fees improves your ability to hold multiple properties.

Scalability: Properties that grow faster enable you to reach 5-7 properties sooner than those that grow slowly.

Risk management: Houses face less oversupply risk than apartments in most markets.

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Ready to Make Data-Driven Investment Decisions?

At Search Property, we help investors identify markets and property types that align with long-term wealth goals. Our 12.21% average growth rate in 2025 outperformed the national average for the sixth consecutive year, and we did it by focusing on fundamentals, not trends.

Book a FREE investment assessment with Search Property. We'll discuss your budget, goals, and strategy to ensure you're investing in assets that actually build wealth.

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