My usual property outlook presentation these days covers two main themes – Cycle & Structure.
The interplay between these two elements makes up the property market’s DNA.
I have written about the property cycle several times over the last 12 months & have also covered four of the main five ingredients that make up the most important structural foundations supporting the Australia residential market.
These four pillars include employment; wages; income & the cost/availability of money.
This missive will cover the most vital ingredient for mine, being demographics.
Now I am not talking about population growth per se – but a deeper cut of the available statistics.
Also, I am not that interested in the past, but much more interested in the future. I am talking about age forecasts.
We are lucky in Australia that the ABS, after each Census, recalibrates their age-related forecasts. They did so late last year, with their estimates reaching out as far as 2100.
Now we won’t get that ahead of ourselves but we will have a look at what’s likely to happen over the next decade or so.
I don’t really like generational segregation i.e. baby boomers; generation X & the like – I think they are too broad & don’t necessarily translate well when it comes to real estate action.
We instead break the market into seven segments:
- Children – aged up to 17 years. Living mostly – one hopes – at home; and whilst not a direct influence on underlying demand, they are captured in the larger household sizes of first home buyers (3.3 people on average per dwelling) & the upgrading market (2.99 people per home).
- Young renters – 18 to 29 years. Statistically, 77% of them rent, many rent apartments in our inner cities.
- First home buyers -30 to 44 years. Yes, up to 44 years! HECS, partnering later; parents as friends; travel; options galore – so yes, for many, it is not until their mid to even late 30s that they buy a home.
- Upgraders – 45 to 59 years. Having children later means that many, even well into their 50s, still have teenage children at home. With teenagers you want space – demand is highest for houses, with lots of bedrooms, a pool etc.
- Downsizers – 60 to 74 years. Many want to move into something with a nexus to the ground; in a small project & if possible in their existing neighbourhood. Living close to the grandchildren is also a strong locational consideration.
- Age-related care – over 85 years. At this age – and it is mostly women who live this long – some form of assistance is often required.
But many who live to 85 years, the statistics show, can expect another ten years of life, so nursing homes (for the sake of labelling them) aren’t necessarily God’s waiting room these days.
Spending on housing peaks when people upgrade, & the money spent on housing, & the number of moves made, drops sharply once we are in our mid-to-late 50s. See the chart below.
Our second chart outlines underlying demand – the number of new properties needed per annum – by each housing segment over time.
This chart suggests:
- Young renters – drop in market demand over the next ten years. My experience is that town planning is a decade behind the actual market & the willingness to approve downtown high-rise apartments in big blocks should have been done ten years ago, not now.
The demand for product is much smaller than many realise. Well, that’s what the statistics are telling us. And it is for that reason we aren’t advising on or advocating large scale downtown apartment projects these days.
- First home buyers – significant increase in demand. Affordable housing is increasingly important, especially given the casualization of the Australian workforce.
Many may also remain renters out of choice or force. But the potential demand is here. More affordable product is the answer, not grants or handouts.[sam id=49 codes=’true’]
- Upgraders – a drop in demand. This will slow down the momentum of the housing market in coming years, especially so once interest rates rise. This is one of the reasons, we believe, why Australia’s housing market will contract post 2016.
- Downsizers – strong lift in underlying demand. Many will opt to age in place, as the upgrading market that usually buys their property will not be large enough to consume this supply. Also, many would sell if they could find smaller & affordable local digs.
The irony here is that this is the demographic that mostly protested against local infill development in the past. However, some are reassessing this non-development stance.
First home buyers are another potential buyer group, but these larger houses will need to be retrofitted to allow shared accommodation to help first timers pay the mortgage.
This is the space in which town planners & urban decision makers need to spend more time, and not in ten years’ time!
- Retirement – a big shift too & more so in the 2020s. Living in more compact housing suits this demographic – more travel; little maintenance & convenience. Importantly, they like a limited number of neighbours; & they like their pets too. Pet friendly developments are a must.
- Age-related care – little change, but post 2020 a massive shift upwards. The ABS statistics suggest that during the 2030s, the largest single housing market in Australia – with the need to build close to 40,000 new dwellings per year – will be for those aged 85 or older. It is little wonder that the likes of FKP and Eureka Group Holdings Limited are focusing on existing & future sites to cater for this pending demand.