I believe that demographics, eventually, shape everything.
And whilst there is a demand for more compact housing, the want to live on top of each other (and the ability to afford the premium to do so) is at odds with Australia’s future demographic shape – and more importantly, what our key buying groups want & can afford.
The same thinking also applies to new McMansions in outer suburbia.
Let’s start from the top
As we outlined several months ago, we don’t use the more traditional generational demographic markers, such as Baby Boomers, when assessing underlying housing need or demand; we think they are too broad.
Instead, we break the housing demographic market into six distinct buyer segments:
- Young renters
- First home buyers
- Aged care
Children, when it comes to housing need, are captured in older segments.
The first chart below shows the relative size (by no. of residents) within each key demographic segment within Australia today.
But it is the change in household formation that best determines future housing need
As shown by our second chart above.
Our second chart suggests that over the next ten years, there will be a need to build more homes for first home buyers; people downsizing & retirees.
Annual housing need for young renters is projected to decline (and so, I have to ask who is actually going to rent out all those little inner city boxes?), as too is the demand for upgrader housing. So the need for those new, big suburban homes should also wane.
Housing required for aged care – for now – is likely to remain steady.
Working out how many new homes are needed (and what and where these new homes should be), is more than just dividing the annual projected total population growth by the average number of residents per dwelling.
What we like to do is work out what is happening in each of the six distinct buying segments.
This provides us with a guide as to the real underlying need for new homes (remember, it is about household formation & not just population growth), and a better understanding as to what homes are actually wanted.
Let me demonstrate this by using first home buyers & those looking to downsize, as examples.
A bit more about first home buyers
- 35 to 44 years
- 3.3 people per household
- 36% no children at home
- 30% couples or living alone (lucky buggers!)
- A projected 20% of total new housing demand over next decade
Brief description: HECS; partnering later; parents as friends; travel; options galore – so it is not until their mid-30s to-early 40s that many buy their 1st home.
Important housing considerations: room to grow; affordability & property improvement
Preferred housing options: some apartments (inner city); some townhouses/duplexes & small houses (middle suburbs); larger detached & dual-income homes (outer suburbs)
What most buy: a property that can be improved & is capable of taking in a tenant/s to help pay the mortgage
And what about downsizers?
- 60 to 74 years
- 2.1 people per household
- 92% no children at home
- 71% couples or living alone
- A projected 32% of total new housing demand over next decade
Brief description: As their title suggests, many want to move into something smaller & if possible in their existing neighbourhood.
Important housing considerations: low maintenance; convenience; like-minded residents; existing location; small projects
Preferred housing options: spacious apartments (inner city); townhouses/villas & dual-income homes (middle-outer suburbs)
What most buy: well-priced, usually in smaller complexes; private; secure & with space for visitors & grandchildren
Of course, some first home buyers might buy a small downtown apartment or many might choose to continue renting; just as those looking to downsize might just decide to stay put & age in their existing home.
Some from either group might buy a large home in outer suburbia, too.
But if the right housing is provided & importantly at the right prices, then many in these two sample markets – along with those in our other four key buyer groups – would buy. So, factoring in considerations such as housing affordability is also important.
Housing that’s really wanted
Our second graphic below outlines what we think is needed when it comes to new housing across Australia over the next ten years.
Our modelling varies, according to location & local economics.
For example, in a middle-ring suburb, many would opt for a two-bedroom property rather than one with a single bedroom. Many would prefer, in this situation, a three-bedroom dwelling, assuming they could afford it.
A household’s housing preference will usually change by location; with more opting for one-bedroom stock closer to the CBD & more wanting three+ bedroom properties in the more outer suburbs.
So the proportional range for each housing type shown in the graphic above, caters for location spread ranging from inner city suburbs to our regional centres.
We need to provide much more diversity when it comes to our new housing stock across Australia. Some places are getting this right, whilst too many are not.
There needs to be much more choice in the housing mix than essentially tall things downtown & big boxes in the outer suburbs .
Town planning dogma is forcing too much new supply in the wrong places & for the wrong reasons. Governments at all levels are not interested in improving Australia’s housing choice.
All housing – not just new stock – is too expensive as a result.
We are not building the right stuff.
Many more Australians would move into more suitable digs if it was available to them. Not everyone wants to (or can afford to) either live in a three+ bedroom detached house or an expensive shoebox in the sky.