While it’s not typically required by law, most financial products such as ETFs and managed funds report historical investment returns over 1, 3, 5, and 10 years, as well as since inception. This data is incredibly useful, as it allows investors to assess performance over the short, medium, and long term – all of which are useful.
In contrast, most media commentary on residential property tends to focus on short-term performance. That’s unhelpful, given that property should arguably be considered an even longer-term investment than shares, simply because the costs of buying and selling are so high. While both asset classes should ideally be held for the long term, property in particular, is risky if you plan to sell within a decade.
That’s why I think it’s so important to review long-term returns when making property investment decisions. It helps provide context and help you drown out short-term noise.
What are the long-term returns?
The table below shows how median house prices in various capital cities have changed over different timeframes. The key takeaway is that short-term returns can be volatile and unpredictable, but over multiple decades, the returns tend to be far more consistent and predictable.
Compounding does the heavy lifting
Sydney, Brisbane, and Perth have each delivered more than 7% p.a. capital growth over the past 40 years. If you own an asset that delivers this level of compounding growth, it’s important to understand how that return plays out over time:
- First decade: The property grows from $1 million to $2 million — an increase of $1 million (around $100,000 p.a.).
- Second decade: It grows from $2 million to $3.9 million — an increase of $1.9 million (around $190,000 p.a.).
- Third decade: It grows from $3.9 million to $7.6 million — an increase of $3.7 million (around $370,000 p.a.).
- Fourth decade: It grows from $7.6 million to $15 million — an increase of $7.4 million (around $740,000 p.a.).
In the fourth decade, average property growth is more than seven times higher than it was in the first decade.
Of course, property markets never move in a straight line. They are cyclical and can be unpredictable in the short term.
But this simplified example illustrates the extraordinary power of compounding over multiple decades.
Should you aim to beat the median?
It’s important to understand what the median house price really represents. The median is simply the middle point. Half of the properties sold in any given quarter were priced below it, and half were above. However, it does not tell us anything about the distribution of growth returns.
The median house price does not track like-for-like property over time. It can be influenced by the types of properties sold in each quarter. For example, if there’s a higher volume of brand-new or newly renovated homes sold compared to undercapitalised properties, it can skew the median price.
Melbourne’s median growth rate of 6.36% p.a. over 30 years gives us an indication where most property returns fall, with the majority likely clustering around this rate. In a normal distribution, most properties will have returns within +/- 1% of this median. Of course, there will always be some properties that significantly outperform or underperform, but these extremes are less common.
Looking at 40 years of data, using both averages and medians, it becomes apparent that a realistic benchmark growth rate would be 3.3% plus inflation of say 2.7% – circa 6% p.a. in total. We believe this should be the minimum benchmark for an average-quality property.
This underscores the importance of asset selection. While the median serves as a helpful benchmark, our goal as investors is to identify higher quality assets that can outperform the median over multiple decades. I have discussed in the past what makes a property investment-grade. I believe a realistic goal is to outperform this benchmark by around 1% – so a total return including inflation of about 7%.
While many properties may be able to exceed this benchmark over shorter periods, only investment-grade properties can deliver higher average growth over multi-decade periods. By definition, that is what makes them investment-grade.
Insights from short, medium, and long-term returns
I thought it might be helpful to share a few observations from my review of the table above.
Sydney
Over 20, 30 and 40 years, Sydney has outperformed other capital cities by around 0.5% to 1% p.a. That might not sound like much, but compounded over decades, it makes a huge difference. There are a few fundamental factors that support Sydney’s superior performance: its large and growing population, employment opportunities for higher income earners, and geography. Being landlocked by national parks and water means limited supply and persistent density pressures, all which support price growth.
That said, the cost of entry is higher. Sydney requires a bigger investment budget, which can lock some investors out. Investors might wonder whether investing solely in Sydney is putting all their eggs in one basket. But investing is not just about returns. It’s about managing risk too. And risk, in this context, is the probability of not exceeding the benchmark return.
If the minimum benchmark is CPI + 3.3% p.a., then Sydney’s long-term data suggests a relatively high probability of exceeding that target. So, if your objective is to maximise the likelihood of achieving your financial goals, why not choose the asset with the best track record of doing just that?
One final observation: Sydney’s more recent growth appears broadly in line with its long-term average. In fact, 10 and 20-year growth rates are slightly below trend, which may suggest there’s some room for mean reversion, as we have seen play out over the past five years.
Melbourne
To say the Melbourne property market has underwhelmed in recent years is putting it mildly. Over the past five years, median house prices have grown by less than inflation. In real terms, prices are around 14% lower than they were five years ago. And over the past decade, there’s been virtually no real growth at all.
But let’s not forget the longer-term context. Between 1980 and 2015, Melbourne’s median house price grew by 8.4% p.a. Even including the most recent decade of weak performance, the 45-year growth rate (1980–2025) still comes in at 7.17% p.a., which is broadly in line with the long-term average for other capital cities. So perhaps Melbourne’s “correction decade” has now run its course, and the market is ready to resume more normal growth.
On the demand side, Victoria’s population growth remains strong. In percentage terms, it’s equal-second with Queensland (behind only WA), but in absolute terms, Victoria added more people than any other state in 2024 – more than 20% above NSW. And it’s well understood that Victoria is not building enough homes to meet this demand. So, the supply-demand fundamentals appear solid.
Unlike Sydney, Melbourne has room to sprawl. While that sounds like an advantage, it comes with a trade-off. If infrastructure keeps pace, geographic expansion can work. But it rarely does. The result is congestion, longer commute times, and higher living friction. Over time, that strengthens demand for investment-grade locations – those with good access, amenity, and infrastructure, because their relative appeal increases.
Some commentators argue that Melbourne’s land tax is prohibitive compared to other states, and I don’t necessarily disagree. However, in a couple of weeks, we will share some data that shows Victoria’s tax revenue growth over the past decade is in line with Queensland and NSW. They are all just as bad as each other!
Brisbane
Brisbane has delivered strong and consistent growth over the past decade. When you look at its 20 and 30-year average growth rates, it would not be surprising if it continued to slightly outperform its long-term average for a few more years. Broadly speaking, its current trajectory appears to be in line with those long-term trends.
In the short term, sentiment drives markets. But over the long run, it’s fundamentals that matter. Melbourne is a good example of this: sentiment has been more negative than the underlying fundamentals would justify.
In Brisbane’s case, there’s a lot of positive sentiment tied to the 2032 Olympics and the expected impact on property prices. That optimism is likely to fuel a prolonged growth cycle. For that reason, I would not be surprised if Brisbane prices continue to rise steadily over the next seven years.
That said, I don’t believe hosting the Olympics materially changes a city’s property fundamentals. So, it’s quite possible, perhaps even likely, that Brisbane will enter a flat cycle sometime after 2032.
Adelaide
Adelaide has posted the highest capital growth of any Australian city over the past 5 and 10 years. Since 1980, when this dataset began, Adelaide’s median house price has grown at 7.25% p.a., a surprisingly strong result compared to the larger capital cities.
However, South Australia’s fundamentals are very different. Its population growth in absolute terms is miniscule, especially when compared to states like Victoria, Queensland, and Sydney. And with a population of under 1.5 million, Adelaide simply does not offer the same depth of employment opportunities, especially for jobs that have higher than average income growth, which is what is needed to drive property prices.
While prices may continue to rise for a little while yet, I would not be surprised if Adelaide enters a flat cycle over the coming decade.
Perth
Perth property prices have rebounded strongly over the past five years. But even with that surge, its long-term growth rate suggests there may still be some mean reversion to play out. Since 1980, Perth’s median house price has grown at 6.76% p.a., a solid result, but still lower than Adelaide’s, despite Perth being a significantly larger city and recording around 3.5 times more population growth in absolute terms.
It’s common to see high percentage growth in the early stages of a property cycle – but percentage growth rates tend to moderate after a few years. That said, based on the historical data, it would not be statistically unusual if Perth continued to average double-digit growth over the next five years.
Long-term investors should focus on long term trends
These long-term trends provide some insight into which capital city markets are more likely to outperform over the next decade, and which ones might not. That helps investors narrow down which cities to focus on or rule out. But ultimately, asset selection remains the most important factor because high quality properties always outperform in every market.
