What CAGR actually measures
Compound Annual Growth Rate is the constant yearly growth rate that would take an investment from its starting value to its ending value — assuming returns compound each year.
The maths: CAGR = (End Value / Start Value)^(1/years) − 1
A suburb with a median price of $500,000 ten years ago and $1,000,000 today has a 10-year CAGR of 7.18% — that’s the single rate that, compounded annually, gets you from $500K to $1M over ten years.
Why single-year growth is misleading
Property markets don’t grow in straight lines. A suburb might deliver:
- Year 1: +12%
- Year 2: +8%
- Year 3: −2%
- Year 4: +15%
- Year 5: +6%
A headline claim like “up 15% last year” tells you nothing about whether the suburb is a sustained performer. CAGR averages the full journey — including the bad years.
What’s a good CAGR for Australian property?
Long-run benchmarks for capital city suburbs:
- Under 3% — underperforming. Losing to inflation before holding costs.
- 3–5% — modest. Treading water in real terms.
- 5–7% — solid. Matches the long-term Australian housing average.
- 7–9% — strong. Top-quartile suburbs over a 10-year window.
- 9%+ — exceptional. Usually reflects a structural shift (gentrification, infrastructure, rezoning).
Beware: very high short-run CAGRs (15%+ over 3–5 years) often reflect mean reversion after a period of stagnation. Perth’s 2023–2025 CAGR is high precisely because it spent 2015–2020 going nowhere.
Why 10-year CAGR is the most useful view
Shorter windows are noisy. A 3-year CAGR can be dominated by one boom year. A 10-year CAGR captures:
- At least one full market cycle
- Multiple interest rate environments
- Government policy changes
- Population trend shifts
If a suburb has delivered 6–8% CAGR over 10 years and shows strong recent momentum, that’s a genuinely defensible investment case — not a speculation on the current cycle.
CAGR and the rule of 72
Useful mental shortcut: divide 72 by your CAGR to get the “doubling time.”
- 6% CAGR → doubles every 12 years
- 8% CAGR → doubles every 9 years
- 10% CAGR → doubles every 7.2 years
At 7% CAGR (close to the Australian housing long-run average), property roughly doubles every decade. Layer in leverage from a mortgage, and that’s how property wealth compounds over a career.
What CAGR can’t tell you
CAGR is backwards-looking. It tells you what a suburb did — not what it will do. A suburb that delivered 9% over 2015–2025 could easily deliver 3% over 2025–2035 if the drivers have shifted.
Pair CAGR with forward-looking metrics: infrastructure pipeline, population growth projections, demand-supply ratios, and SEIFA trajectory. Strong historical CAGR plus strong forward indicators is the genuine signal.