The best way to compare the performance of the two asset classes of the property market or the share market is to reference an accumulation series that includes dividend payments for shares and rental income for housing. This way we can measure the total returns rather than just changes in the asset value.

Plotting the two indices side by side from the commencement date of the series (May 2005) shows housing (+211%) has outperformed shares (+173%) by a reasonable margin. A big part of the outperformance of housing relative to shares can be attributed to the stability of the asset class during the global financial crisis; through 2008, the housing index fell 2.7% while the share price index was down 38.4%.  Post GFC (i.e. from January 2009) shows that share market returns (+158%) have been higher relative to housing (132%).

More recently, with housing values falling and rental yields remaining low, the share market has started to outperform relative to housing.  The past 12 months, to the end of September 2018, saw housing returns track 0.6% lower, while total returns across the ASX/200 were up 14%.

Of course, there are substantial differences in the total return profile between the cities and regions of Australia, just as there are substantial differences between individual companies trading on the ASX.  Over the 12 months to September 2018, total returns on housing across the Australian capital cities ranged from -3.2% in Sydney to +14.7% in Hobart.  Regional markets are generally showing stronger total returns than the capital cities, thanks to generally higher rental yields as well as housing values that have been more resilient to falls.

As the housing market moves through the downward phase, we would expect the total return profile to reduce further. Sydney and Melbourne are already recording negative total returns; a reflection of both falling values and very low rental yields. With limited returns on offer across the housing sector, and potentially changes to taxation polices if we see a change of government, we could see more investors choosing to place their hard earned dollars outside of the housing sector.