HIGH-RISE APARTMENTS VS HOUSES: WHICH INVESTMENT COMES OUT ON TOP?

Australia’s housing shortage has long positioned real estate as a cornerstone of wealth creation. But as governments push to deliver 1.2 million new homes, many of them high-rise apartments, investors are increasingly weighing whether vertical living offers the same long-term returns as traditional houses.

While apartments offer lower entry prices and strong rental demand in key locations, critics warn that strata costs, oversupply and lack of land ownership can undermine long-term capital growth.

LOCATION AND LIFESTYLE DRIVE DEMAND

Company RE chief executive Marcus Buskey says thoughtfully designed high-rise developments in lifestyle precincts can deliver strong returns, particularly in premium coastal markets.

Demand remains robust across the Gold Coast and inner-city Brisbane, driven by downsizers, professionals and interstate buyers seeking convenience and lifestyle.

“Apartments in premium Gold Coast areas like Mermaid Beach, Broadbeach and Burleigh Heads have consistently demonstrated capital growth, driven by limited availability, desirability of location and ongoing demand from lifestyle-focused buyers,” Buskey says.

He adds that quality, exclusivity, views and proximity to amenities remain critical factors influencing performance.

MELBOURNE MARKET SHOWS MIXED SIGNALS

Melbourne project marketing specialist Jon Ellis, founder of The Move, says apartments continue to dominate transactions, accounting for 360 of his last 400 sales.

However, he warns not all developments perform equally.

“Some lower-grade apartments in Melbourne may never go back up to the sales price they were achieving a few years ago,” Ellis says.

He notes that construction costs have risen sharply, making it harder to deliver strong investment yields. Yet demand remains strong for well-executed developments.

“Investors purchasing an apartment for $600,000 need to get about $600 a week in rent. If you can get that right and prove it, demand for apartments certainly outstrips residential houses.”

THE LAND FACTOR REMAINS CRITICAL

Like all investment opportunities, others favour a freestanding home over a high-rise apartment.

“In my opinion, the only people who make money from high-rise apartments are the developers who build and sell them,” buyers’ agent Gianni Musumeci says.

For this reason, the Sydneysider steers investors away from high-rise apartments. “While they may appear to be an appealing investment on the surface with attractive guarantees, modern designs and convenient locations at somewhat lower entry points, high-rise apartments are, in my view, rarely a good investment,” Musumeci, of Leverage Property Advisers, says.

“This is especially the case when compared to standard residential homes in suburban markets, primarily due to the overwhelmingly high supply of apartments, the high level of cash flow expenses, the number of defects commonly found in high-rise buildings and the cost to remediate them, as well as the lack of land ownership, which is the primary driver of capital growth.”

“Economics 101 tells us that capital growth is achieved when diminishing supply meets increasing demand. The issue with high-rise apartments is that they’re typically built in areas with overwhelming supply, and often, that supply exceeds demand,” he says.

“These developments are usually located around major transport hubs, and as a result, if you’re looking to buy in one of these areas, you’re competing with dozens or even hundreds of similar listings.”

“Apartments are far easier to mass produce because the only restriction is how high you can build. You can’t expect strong growth in a market that’s saturated. In contrast, standalone residential homes are limited by land availability,” Musumeci says.

WEALTH CREATOR FAVOURS FREEHOLD PROPERTY

Entrepreneur and investor Scott O’Neill, who has amassed a combined net worth of $252 million with his wife Mina, says his personal experience has reinforced the benefits of freehold ownership.

He owned a high-rise apartment early in his investing journey but sold it after two years.

“The yields can vary significantly, ranging from four to seven per cent, but that’s before accounting for sinking funds and strata fees. Your net returns often drop to between one and two per cent,” O’Neill says.

He says oversupply and rising strata costs can further weaken performance.

“Most long-term property owners end up selling high-rise apartments in favour of freehold properties.”

INVESTMENT DECISION DEPENDS ON STRATEGY

Despite the risks, apartments can still deliver strong results when chosen carefully.

Experts agree that location, developer quality, supply levels and long-term demand are critical factors.

While houses continue to offer superior land value and long-term growth potential, apartments can provide attractive yields and accessibility for investors seeking exposure to high-demand urban markets.

Ultimately, the right investment depends on an investor’s strategy, time horizon and appetite for risk.

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.