It is of concern to me that this type thinking is so ingrained into people’s minds that you cannot even suggest an alternative view.

What I am here to tell you is  that land does NOT go up faster than apartments in all instances.

I would like to make my first point very quickly. If you have the chance to buy an apartment or a house (land) in the same suburb, then, in most cases, you are better off buying a house, from a pure capital appreciation perspective.

As shown in the below diagram, if you invested $50,000 in  a house or apartment in 1980 in Hawthorn, Elwood or Box Hill, you would have been financially better off if you bought a house.

People say that land appreciates and buildings depreciate   … and this makes complete logical sense.

However, it does not change the fact that you have an apartment footprint of 100m2 that is capable of having two beds, a bathroom, kitchen  and lounge. Is this not the same as having a 100m2 dwelling with no backyard?

Ask yourself this question – do most houses get renovated or demolished?

And why do we renovate? Well, the cost of building and materials also increases, doesn’t it ?

So, is a 100m2 house with no backyard as good as the same sized apartment? It’s a good question and the answer in most instances is NO. The reason  is Supply and Demand.

As we begin to build up houses (land), become more scarce and thus there is increased demand. Remember, with no possible additional supply, the demand will constantly increase.

Therefore, in almost all cases – and I stress  almost all – houses will go up faster than units but ONLY if they are located in the same area.

So what causes property to appreciate? Is it land?  No, it’s demand.

While the demand for an inner-city apartment is not as high as an inner-city house , the demand for an inner-city apartment has good potential to be higher than those houses in suburbs further away from the CBD.

Let’s look at the suburb of South Yarra, which has almost reached development capacity. Is an apartment in South Yarra in more demand than a house in Doncaster, Deer Park, Glen Waverley or Cranbourne ?

Well let’s  pretend we invested  $50,000 in 1980 in a South Yarra Apartment and a house in Doncaster, Deer Park, Glen Waverley  and  Cranbourne , and let the results speak for themselves.

In almost all instances, South Yarra units outperformed houses in the outer suburban areas – behind this graph, in the raw data, are numerous examples  that show a very clear trend that  the further away from the CBD, the lower appreciation; therefore inner-city units or apartments have a greater chance of appreciating faster than  houses in the outer suburbs.

Whether buying a property to live in, or for an investment, it is important to be as informed as possible. It is essential to establish your financial and emotional objectives before every purchase and then make good decisions based on the correct information.

To say land appreciates and buildings depreciate is fine but remember that building costs increase and a footprint is a footprint.