In short: Townhouses can be a good investment when they sit in a strong location and on a decent share of land: they cost less than houses and usually grow faster than apartments. Houses still tend to win on long-term growth, and from 2027 the tax rules favour new homes over established ones for investors.

Melbourne house values peaked above $1.1 million in late 2021 and, even after recent falls, a house remains out of reach for many first home buyers and investors.

For many Australians, the current property market poses a major challenge as rising prices have made it increasingly difficult to find affordable housing, especially for those on tighter household budgets. Lending rules and interest rates also cap how much most people can borrow. As a consequence, investors seeking to enter the market are turning to other property options, which are becoming more and more attractive.

In September 2026 the median unit value in Melbourne was about $625,000, well below the median house value of about $915,000 (Cotality, formerly CoreLogic). However, while a unit provides a cheaper entry point to the property market, it also has certain disadvantages for investors.

Units usually come with less land than houses, which means that capital growth for units tends to be lower in comparison. This is particularly the case for high-rise apartments, where the land value of the building is shared by dozens or even hundreds of unit owners.

This is where townhouses can present an attractive alternative, offering more space than apartments and at a lower price point than houses. But are they truly the best of both worlds?

As townhouses have become a popular choice for investors in Australia, we wanted to explore the pros and cons of this option to help you make informed property choices.

What defines a townhouse?

A townhouse is a type of housing where individual units are attached to each other in a row, often sharing walls. Townhouses are typically multi-storied with a small front yard or back yard, unlike units that are often single-level.

The main difference between a townhouse and a unit is that townhouses are standalone, separate homes that are usually connected to each other, while units are self-contained residential spaces within a larger building or complex.

What are the pros of townhouses as investment properties?

Relative affordability

For many first home buyers and property investors on a budget, the most desirable areas to buy are often outside of their price range. Townhouses can be a way around this problem.

More affordable than standalone houses, townhouses can be an accessible way to get into a high-demand area with strong capital growth potential without breaking the bank.

Lower maintenance costs

Your townhouse, especially if it is a newer build, may have a body corporate attached. This means that the financial responsibility for repairs and maintenance doesn't necessarily fall solely on the owner, in contrast to standalone homes, where the responsibility for all aspects of the property rests solely in your hands.

Additionally, even without a body corporate, the smaller size of townhouses can translate to potentially lower maintenance costs when compared to houses.

Stronger capital gains than units

As townhouses typically have a greater land-to-value ratio than units, they have the potential to attract stronger growth over time. Other factors, such as greater room, privacy and outdoor areas, also play an important role in the long-term desirability of townhouses.

Stronger rental yield than houses

Your expected rental yield is another important metric to consider when buying an investment property.

Townhouses often have a higher rental yield compared to standalone houses because of their relative affordability and overall desirability from renters.

Furthermore, investing in a townhouse can help buyers acquire a property in a prime location, which can attract quality tenants such as young families and couples. The desirable features of townhouses, such as their multiple levels and bedrooms, can also drive up demand and result in increased rental income.

What are the cons of townhouses as investment properties?

Historically weaker capital gains than houses

Unfortunately for townhouses, standalone houses have continued to outperform every other type of property on the market. This is due to a number of factors, including market desirability, land sizes and housing supply. Keep in mind, however, that there are many exceptions to this rule as many different factors will affect the long-term capital growth of a property.

Market saturation

In certain areas, especially in newly built or developing suburbs, there could be an overabundance of townhouses available on the property market.

Historically, developers have been more likely to turn houses into townhouses rather than the other way around. This trend, combined with the fact that new townhouse developments often have similar designs and appearances, can lead to an oversupply of this type of property.

As the property market operates on the principles of supply and demand, an oversupply of townhouses can potentially result in decreased rental demand and lower capital growth when compared to standalone houses.

Strata fees

These days, many townhouses are part of a shared strata title, which means that the land and its maintenance are shared among the neighbouring townhouses. This arrangement typically involves following certain rules and paying annual fees to cover repairs and maintenance for communal areas of the property.

As an investor, it's important to understand the specific terms of the strata agreement, as they can vary and potentially impact the property's overall appeal and value.

Weaker rental yield than units

Depending on where you are on your property investment journey, keeping a healthy flow of cash through a strong rental yield may be your top priority. As townhouses are generally more expensive than apartments and smaller units, they are likely to attract a lower rate of rental yield than their counterparts.

New tax rules favour new townhouses

From 1 July 2027, investors who buy an established home after 7.30pm on 12 May 2026 can only offset net rental losses against residential property income or gains, not their salary. Newly built homes, including many new townhouses, keep the old treatment. If you plan to negatively gear, this can tip the numbers towards a new build, so model both options with your broker and accountant.

So what’s our verdict?

Although factors such as purchase price and rental yield will impact the success of a property, it's the capital gains a property accrues that will provide the most significant financial rewards for investors.

As a general rule, it is best to prioritise long-term growth potential over short-term gains and advantages. Following this principle, townhouses aren’t always the best investment option as their value is historically outperformed by standalone houses.

With that being said, this is certainly not always the case, and there are many scenarios in which a townhouse may be better positioned to meet an investor's property goals.

The property type is not the only indicator of a property's potential, with location, rental yield, quality of tenants and maintenance costs all playing a role in its long-term performance. If the affordability of a townhouse helps you meet more of these criteria, then perhaps this property type might be right for you.

Ultimately, it’s important to assess all the factors relevant to your individual situation before reaching an investment decision.

Frequently asked questions

Are townhouses a good investment in Melbourne?

They can be, especially in well-located suburbs where houses are out of reach. Look for a larger land share, few townhouses on the same street, low owners corporation fees and strong owner-occupier demand.

Do townhouses grow in value as much as houses?

Generally not, because land drives long-term growth and a townhouse owns less of it. They do tend to outperform apartments in large blocks, for the same reason.

Is the off-the-plan stamp duty concession available for townhouses?

It can be. For contracts signed from 21 October 2024 until 21 April 2027, Victoria's temporary off-the-plan concession applies to strata lots such as apartments, units and townhouses, for all buyers including investors.

Last updated: 25 October 2026.

General information only. This article does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and seek personal advice before acting. Elephant Financial Pty Ltd trading as Elephant Advisory is an authorised credit representative (ACR 487962) of Yellow Brick Road Aggregation Pty Ltd (formerly Vow Financial Pty Ltd) (ABN 66 138 789 161), Australian Credit Licence 390261.