Is There a Smarter Way to Invest in Property? 

Property is a very attractive asset class

Australian house prices have seen impressive growth over very long periods: the last time that Australian houses fell in value over a period greater than a year was 120 years ago – before Federation. To say that the market has done well in Australia is an understatement. House prices in the eastern capitals have risen consistently at an average rate of more than 7% for decades, withstanding multiple financial crises along the way.

Despite the media commentary focusing on interest rates and housing supply as the key drivers of house price performance, LongView’s whitepapers reveal demographic growth and low urban concentration as the main causes. This is because Australia has unusually high population growth – indeed, the second highest population growth in the developed world – fuelling a constant demand for more housing. Meanwhile, more than half of Australia’s population is concentrated in just three urban centres: Sydney, Melbourne, and Southeast Queensland. Australia’s major cities are also unusually spread out, with most tall buildings clustered in CBDs and low-density suburbs expanding as far as the eye can see.

The result is that well-located residential land, where people can live near jobs, services, and amenities – is in ever-increasingly short supply. Consequently, land value accounts for most of the growth in property value over the last 30 years in Australian capital cities.

But a rising tide does not lift all boats

Asset selection matters. For example, high-density units have grown relatively little, averaging just 1% annually for the past 15 years, even as freestanding houses have grown by more than 7% annually over the same period. This is because most units have significantly less land content than houses. And, when it comes to property growth, land appreciates, but buildings depreciate.

On the other hand, Robust Older Dwellings on Well-Located Land (RODWELLs) can deliver superior capital growth. Because the building is older, its value will have depreciated significantly, meaning that most of the property price is made up of land value, ready to appreciate. But many older houses can make great homes, as long as they are solid buildings and don’t hide any nasties.

Many landlords in Australia lack this understanding, or the expertise to identify and quickly buy RODWELLs, explaining why our modelling found that 60% of Australian landlords would have been financially better off investing in super.