Apartments vs. Houses – What Should You do in 2025?

The Australian property market has long been a cornerstone of wealth-building for investors, homeowners, and first-timers alike. However, one question continues to spark heated debate: In the current market, should you invest in an apartment or stick to houses? As of March 22, 2025, with property prices fluctuating, rental yields shifting, and economic conditions evolving, this question is more relevant than ever. In this article, we’ll dive deep into this legendary debate, analysing the pros and cons of each option. We’ll also explore a strategic approach: buying an apartment to live in—leveraging its rental yield and lower entry cost—while simultaneously investing in a house in an upcoming location for capital growth to kickstart your portfolio-building journey.

The Australian Property Market in 2025: A Snapshot

Before we dive into the apartment vs. house debate, let’s set the scene. As of early 2025, the Australian property market remains a mixed bag. According to CoreLogic’s latest data, median house prices in capital cities like Sydney and Melbourne hover around $1.3 million and $938,000, respectively, while apartments sit at $817,000 and $631,000. Meanwhile, rental yields for apartments often outpace houses, with urban units delivering around 4.5–4.7% compared to 2.8–3% for houses in the same areas.

Interest rates, though easing from their 2023 peaks, still influence affordability, and the demand for housing continues to outstrip supply, particularly in urban centres. This dynamic creates a unique opportunity for savvy investors to weigh their options carefully. So, let’s break it down: apartments or houses—which is the better bet in today’s market?

Apartments: The Case for Urban Living and Investment

Pros of Investing in Apartments

Affordability and Lower Entry Costs
Apartments generally come with a lower price tag than houses, making them an attractive entry point for first-time buyers or investors. For example, in Sydney, where the median house price exceeds $1.3 million, a well-located apartment can be snapped up for under $900,000. This affordability allows you to enter high-demand markets that might otherwise be out of reach.
Higher Rental Yields
Apartments, especially in urban areas, tend to offer superior rental yields. Data from SQM Research shows that Melbourne units delivered a gross rental yield of 4.7% in mid-2023, compared to 3% for houses. In 2025, this trend persists, driven by demand from young professionals, students, and small households who prefer city living.
Lower Maintenance Costs
Unlike houses, apartments often come with shared maintenance responsibilities managed by a body corporate or strata scheme. This reduces the burden of upkeep costs like lawn mowing or roof repairs, making them a hassle-free option for busy investors or owner-occupiers.
Lifestyle Appeal
Apartments in good areas—think inner-city suburbs like Surry Hills (Sydney) or South Yarra (Melbourne)—offer proximity to amenities, public transport, and employment hubs. This appeal drives consistent tenant demand, ensuring steady rental income.

Cons of Investing in Apartments

Limited Capital Growth
Historically, apartments lag behind houses in capital appreciation. The value of a house is tied to its land, which appreciates over time, while apartments rely more on the building’s condition and market saturation. CoreLogic notes that over the past decade, house prices in capital cities rose 70%, while apartments gained just 43%.
Strata Fees
Ongoing strata fees can eat into your rental profits. For luxury apartments with pools or gyms, these costs can be significant, reducing your net yield.
Oversupply Risks
In some markets, an oversupply of new apartment developments can depress prices and rental demand. Cities like Brisbane and Melbourne have faced this issue in recent years, posing a risk to investors.

Houses: The Traditional Powerhouse of Capital Growth

Pros of Investing in Houses

Superior Capital Growth
Houses have long been the gold standard for capital appreciation in Australia. The land component, a finite resource, drives value over time. For instance, a house bought in Sydney’s eastern suburbs 20 years ago could have tripled in value, far outpacing most apartments.
Flexibility and Control
With a house, you own the land and can renovate, subdivide, or extend (subject to council approval). These value-adding opportunities are largely unavailable with apartments, giving houses an edge for long-term wealth creation.
Tenant Stability
Houses typically attract families or long-term tenants, who are more likely to stay put compared to the transient renters often found in apartments. This stability reduces vacancy periods and turnover costs.

Cons of Investing in Houses

Higher Entry Costs
The price of a house in a desirable area can be prohibitive. In 2025, even outer suburbs of major cities demand deposits of $150,000 or more, locking out many first-time investors.
Lower Rental Yields
Houses generally offer lower rental yields than apartments. In Sydney, a $1.5 million house might yield 2.8% ($42,000 annually), while an $800,000 apartment could deliver 4.1% ($32,800). For cash flow-focused investors, this is a significant drawback.
Maintenance Burden
Owning a house means shouldering all maintenance costs—think plumbing, roofing, and landscaping. These expenses can add up, especially for older properties.

A Hybrid Strategy: Live in an Apartment, Invest in a House

Given the strengths and weaknesses of both options, here’s a strategic approach that could optimise your financial position in 2025: Buy an apartment to live in and invest in a house in an upcoming location. This dual-purpose strategy leverages the benefits of apartments (affordability, rental yield) while positioning you for the capital growth potential of houses. Let’s break it down.

Step 1: Buy an Apartment to Live In

Why It Works:
Purchasing an apartment in a well-located urban area—like Newtown (Sydney) or Fitzroy (Melbourne)—offers a practical solution for owner-occupiers. With median prices significantly lower than houses, you can secure a foothold in a premium market without stretching your finances. Plus, if you ever decide to move out, the apartment’s high rental yield (e.g., 4.5%+) ensures it becomes a cash-flow-positive investment.
Bad Debt Advantage:
When you live in the property, the mortgage is considered “bad debt” (non-tax-deductible), but this is offset by avoiding rent payments. Over time, as you pay down the loan, you build equity that can be used to fund further investments.
Example:
A $700,000 two-bedroom apartment in Brisbane’s West End might cost you $140,000 as a deposit. With a rental yield of 4.8% ($33,600 annually), it’s a solid asset to hold if you later rent it out.

Step 2: Invest in a House in an Upcoming Location

Why It Works:
While living in your apartment, redirect your savings or rental income (if you move out) into a house in an emerging suburb with strong growth potential. Areas like Geelong (VIC), Ipswich (QLD), or Newcastle (NSW) are tipped for growth in 2025 due to infrastructure projects, affordability, and population shifts. These locations offer houses at lower price points (e.g., $600,000–$800,000) with land value poised to rise.
Capital Growth Focus:
Houses in these areas may start with lower yields (e.g., 3–3.5%), but their long-term appreciation potential is higher. For instance, Domain’s 2024 forecasts suggest regional hubs could see 6–8% annual growth as city dwellers seek affordability.
Portfolio Building:
The equity from your apartment, combined with the appreciating house, creates a foundation for a diversified portfolio. Over 5–10 years, you could sell or refinance to acquire additional properties.
Example:
A $650,000 house in Ipswich with a 3.5% yield ($22,750 annually) might grow 7% yearly. In five years, its value could hit $913,000, netting you over $260,000 in capital gains.

Why This Strategy Shines in 2025

Market Timing:
With interest rates stabilising and urban rental demand strong, apartments remain a safe bet for cash flow. Meanwhile, emerging regional markets are rebounding, offering a window to buy houses at pre-boom prices.
Risk Mitigation:
Living in an apartment reduces your exposure to vacancy risks, while the house diversifies your portfolio across property types and locations.
Scalability:
This approach allows you to start small (apartment) and scale up (house), building wealth without overleveraging early on.

My Opinion: Apartments or Houses?

If I had to choose in the current market, I’d lean toward the hybrid strategy over a single-focus approach. Apartments offer unbeatable affordability and rental returns, making them ideal for immediate cash flow and urban living. However, houses remain the king of capital growth, especially in a country where land is a prized asset. By combining the two—living in an apartment and investing in a house—you get the best of both worlds: stability now and growth later.

In isolation, I’d pick houses for long-term wealth-building if budget allows, given their historical performance. But for first-timers or those with limited capital, apartments are a smart stepping stone. The key is location—whether it’s an apartment in a bustling city hub or a house in an up-and-coming suburb, research and timing are everything.

Conclusion

The apartment vs. house debate in Australia’s property market is far from settled, and in 2025, both options have their merits. Apartments excel in affordability and rental yield, while houses dominate in capital growth and flexibility. A hybrid strategy—living in an apartment while investing in a house—offers a balanced path to start your investment journey, leveraging bad debt wisely and targeting growth in emerging markets.

Ready to dive in? Research your target areas, consult with experts, and align your choice with your financial goals. Whether you choose an apartment, a house, or both, the Australian property market remains a legendary arena for building wealth—one brick (or strata fee) at a time.