In short: Over the long run, houses have grown faster than units in Australia's capitals, mainly because land drives growth. Units usually offer a cheaper entry price and a higher rental yield. For most long-term investors a well-located house wins, but a unit in a high-demand area can beat a house in a weak one. From 1 July 2027, new tax rules also favour newly built homes for investors.

The growing unaffordability of the property market has significantly impacted investors, especially in Australia's capital cities.

Prices have surged to the point where entering the market is increasingly challenging for investors. In Melbourne, the median house value was about $915,000 in September 2026, against about $625,000 for units (Cotality), and houses close to the city routinely cost well over $1 million.

Units have been an increasingly viable alternative to houses in the property market, presenting a lower-cost entry point and a greater stream of supply. But does this come at the cost of the long-term financial success of your asset?

In this article, we delve into the historical performances of both houses and units to help you make an informed decision when the time comes to purchase an investment property.

How do houses and units stack up historically?

Capital gains is the name of the game when it comes to property investing.

Whilst factors such as rental income and tax incentives will play a role, the ultimate success of an investment property hinges on its appreciation in value over time.

Historically, houses have outperformed all other types of property.

A 2022 CoreLogic (now Cotality) report covering 30 years of data highlights the remarkable growth in housing values over the past three decades, showcasing a consistently widening gap between house and unit prices.

Back in 1992, the median house value in Australia's capital cities was recorded at $167,933, closely followed by the median unit value at $156,472. Over the span of the next 30 years, median house values witnessed a staggering surge of 453.1%, soaring to $928,812 during the peak of the property market in 2022. In contrast, median unit values experienced relatively modest growth, with an appreciation of 306.7% over the same period, reaching $636,352 by mid-2022.

In terms of annual growth over the last three decades, median house values have risen by 5.87% per annum, whereas median unit values have experienced a slightly lower annual increase of 4.79%.

This is clearly a significant gap, as the power of compound interest magnifies the disparity the longer the asset is held for.

The gap in performance between houses and units can be put down to a number of factors.

A primary reason is that houses typically have a higher land-to-value ratio than units. Whilst the structure of a property will usually depreciate in value over time, it is the land the property sits on which (usually) appreciates. Therefore, a higher land-to-value ratio will typically mean higher rates of capital growth.

Another key factor contributing to the situation is the interplay between supply and demand. As Australia's capital cities experience continuous population growth, there is a corresponding increase in the demand for higher-density housing. This surge in demand prompts developers and city planners to invest more in the construction of new multi-unit buildings to cater to the evolving needs of the population. In urban areas, this trend gradually leads to a scarcity of houses over time, further driving demand and accelerating price growth.

The COVID years also boosted demand for houses with more space, particularly in Melbourne after its long lockdowns, and that preference has largely stuck.

Ultimately, with houses outperforming units by 1.08% per annum in terms of capital growth, it may seem silly to consider any other investment. However, determining whether a property is a good buy involves considering many other factors, and one of the most crucial among them is rental yield.

Are houses or units better for rental yield?

Rental yield, calculated by dividing the property's annual rental income by its purchase price, serves as a key metric in assessing the property's potential return on investment.

The rent you receive from an investment property will be a critical source of cash flow throughout the mortgage, giving you the flexibility to pay for expenses such as repairs, maintenance, loan repayments and more.

Historically, units experience better rental yields than houses do.

In Melbourne, units have consistently returned gross yields around one percentage point higher than houses. You can check current figures for a suburb on SQM Research.

Units typically perform better than houses on the rental market for a number of reasons. Units sell at a lower price point than houses, meaning investors can receive higher rental yield percentages when compared to the rental income generated. Units are also commonly found in urban, high-density areas where there is strong demand due to the proximity to employment, amenities and services.

The importance of rental yield in your property investment strategy will depend on whether you favour short-term cash flow or long-term capital growth.

Retirees, who no longer receive a regular paycheck, place great importance on the rental income a property generates as it becomes vital for financing their lifestyle. Consequently, many older investors tend to adjust their investment strategy towards units and higher-yielding assets, recognising the growing necessity for accessible cash.

However, bear in mind that the appreciation in a property's value will quickly outpace any gains in rental income. Don’t get seduced by a high rental yield if it comes at the cost of capital growth.

If your intention is to hold onto a property for an extended period, the most effective approach for wealth accumulation is to seek out an asset with a strong potential for robust capital gains.

What are the other factors to consider?

When weighing up your investment property options, there are many more factors that will help determine the success of your venture.

The location of your property is crucial, as it will impact demand from buyers when it’s time to sell.

When affordability is a major consideration, deciding between purchasing a unit in an attractive area or a house in a less appealing location becomes a challenging decision. While houses in desirable areas may offer the potential for significant capital gains, their higher price points make them unattainable for some investors. A unit in a highly sought-after area may well outperform a house in an area where demand is lower.

Securing high-quality tenants is of utmost importance, and units often prove to be appealing options for renters. Units in desirable areas open up a wider range of choices when it comes to selecting reliable and responsible tenants, ultimately saving you from headaches in the future.

Another aspect to consider is ongoing maintenance. As properties age, they typically require more frequent maintenance and repairs, which can result in substantial expenses in the short term. This responsibility falls on the owner in the case of houses, while units in buildings often contribute fees to collectively share the burden of maintenance responsibilities.

So are houses or units a better investment?

Historically, houses perform better than units due to their consistent demand and superior rates of capital growth. But that doesn’t mean they will necessarily be the best option for you.

Factors such as rental yield, location, quality of tenants and ongoing repairs will all affect how successful an investment property is in the long run.

If the affordability of a unit helps you better meet these other criteria, then it might present a better investment choice for your situation.

If you're facing difficulties in finding the right property, consider seeking the assistance of a buyer's agent. They can help you locate a property that aligns perfectly with your financial needs and goals.

Also factor in the 2026 tax changes. From 1 July 2027, investors who buy an established home after 12 May 2026 can only offset net rental losses against residential property income or gains, while new builds keep the old treatment. That can tilt the numbers towards new units and townhouses for investors who rely on negative gearing.

Finally, get home loan pre-approval before you buy so you stay within budget.

Frequently asked questions

Do houses or units grow more in value?

Historically houses. Over the 30 years to 2022, capital-city house values rose about 5.9% a year against about 4.8% for units, largely because houses carry more land.

Do units have better rental yields than houses?

Usually, yes. Because units cost less, the rent is a higher percentage of the price, typically around one percentage point more in Melbourne.

Can I still negatively gear a unit?

For established units bought after 7.30pm on 12 May 2026, net rental losses can only offset residential property income from 1 July 2027. New builds and properties bought before that time keep the old rules.

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.