Smaller homes to combat housing affordability- Cameron Kusher

Data released by the Australian Bureau of Statistics (ABS) earlier this week shows that the average floor area of a new home is starting to fall which is most likely a response to escalating vacant land costs, smaller lot sizes and affordability pressures.

Between 2001-02 and 2012-13, the average area of a new house across Australia has increased from 227.50 sqm to 241.10 sqm at a rate of 0.5% each year. Conversely, the average area of ‘other’ residential properties (mostly apartments and townhouses) has increased at an average annual rate of 0.1% per annum over the same period from 132.6 sqm to 133.9 sqm.

Although the average area of new homes has trended higher, it is interesting to note the recent decline in the size of new homes. After reaching a peak in 2008-09, the average floor area of a new home has fallen from 247.7 sqm to 241.1 sqm.

The average size of new ‘other’ residential properties peaked much earlier in 2004-05 at 143.4 sqm and has since fallen to 133.9 sqm. It is likely that the higher cost associated with constructing new properties, largely attributable to land costs as well as costs associated with construction materials and labour, is the reason why we are seeing a shrinking in the size of new homes.

RP Data Property Pulse - research article

Sales of residential vacant land is a proxy for future development of a new house. Over the period from 2000-01 to 2012-13 the median price of a vacant block of land across the country increased from $66,000 to $197,000 at a rate of 9.5% per annum.

While the price of land increased at a significant rate, the typical size of land fell at a rate of -1.8% per annum from 750 sqm in 2000-01 to 600 sqm in 2012-13. The result of escalating prices and reduced land area is that you pay a lot more and get significantly less land this is highlighted by the fact that the median rate/sqm of vacant land has lifted from just $86/sqm in 2000-01 to $361.40/sqm in 2012-13 (an increase of 12.7% per annum).

RP Data Property Pulse - research article

Given that the cost of the vacant land has increased it is no wonder that the size of homes has started to reduce. The cost of buying a new home is getting quite restrictive and as a response developers and builders are reducing lot and home sizes in order to provide houses at a more affordable price point.

The trend towards smaller new house sizes can be seen across each state and territory. Across each region average new house sizes are below their previous peak and in each state except for Tasmania.

What is perhaps most interesting is that the state which includes our most expensive and populous capital city (New South Wales) has a significantly larger average new home size (266.20 sqm) than all other states, maybe there is scope for further significant reductions in the size of new homes in order to improve housing affordability, particularly within Sydney.

RP Data Property Pulse - research article

The average size of new other residential properties over time shows slightly differing trends. In all states and territories except for New South Wales and Tasmania the average size in 2012-13 was below the record high levels.

Although sizes are generally below their peak, average sizes recorded an annual increase in each state and territory over the year except for within Queensland, the Northern Territory and the Australian Capital Territory.

New South Wales is again quite interesting with a large increase in the average size over the year and once again the greatest average size of all states. Perhaps the more affordable nature of residential properties that aren’t houses is resulting in builders and developers offering increasingly larger floor areas as an incentive to purchase these types of properties.

RP Data Property Pulse - research article

Overall the data shows that the escalating cost of land which subsequently adds to the cost of the finished product is probably the driver of the reducing size of new homes. Over the coming years I would expect that we will see a further fall in the size of new homes as developers and builders seek new ways to attract price sensitive purchasers.

The 2011 Census showed that there was an average of 2.6 persons per household and 3.1 bedrooms, given this there is no doubt scope to reduce new home sizes and developers targeting price sensitive purchasers should potentially look to develop smaller floor areas with fewer bedrooms as a way to improve affordability.

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Cameron Kusher

About

Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au


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