Bigger houses, smaller blocks

By Leith van Onselen

The Australian’s Bernard Salt has provided an interesting breakdown from the 2011 Census of the shift by Australian home buyers towards larger houses on fringe housing estates, as well as smaller studio apartments in the inner city:

The 2011 census specifically asked the number of bedrooms in each dwelling. There are about 23 million bedrooms in Australia, and it’s growing at a rate of close to 400,000 a year. The most common dwelling structure in Australia is the three-bedroom version with a 45 per cent share of all stock, but in terms of net new dwellings built since the 2006 census, the most popular is the four-bedroom version with a 45 per cent share. In comparison, the three-bedroom dwelling only captured a 20 per cent share of new dwellings constructed since 2006.

Our houses are getting bigger to such an extent that if current trends were to continue the national icon by mid-century would no longer be a three-bedroom brick-veneer but a four-bedroom, two-bathroom dwelling. And it’s not just four-bedroom homes that are in demand.

Between 2006 and 2011 the number of private dwellings in Australia increased by 625,000, or 9 per cent. However, the number of three-bedroom dwellings — the most popular form of house — increased by just 4 per cent. There was a 15 per cent jump in the number of studio apartments, up 5000 to 37,600, as well as a 17 per cent jump in the number of four-bedroom homes, up 279,000 to 1.9 million.

But the real bedroom action isn’t at the small end of the dwelling spectrum: it’s at the upper end. The number of five-bedroom dwellings in Australia increased by 20 per cent, or 56,300, over the five years to 2011. And in the six-plus bedroom category, the jump was 21 per cent. McMansion private dwellings with six or more bedrooms increased from 59,400 in 2006 to 71,900 last year.

The housing market is polarising, with strong growth in demand for four bedrooms and also for studio and single-bedroom apartments. The products that are struggling are two- and three-bedroom dwellings…

It would be easy to try to blame the high cost of new housing on increasing house sizes. However, to do so would be incorrect when half to two-thirds of the cost of new house and land packages are captured by land values, which have risen substantially over the past decade:

Not only has the median price of vacant housing blocks risen substantially, but they have shrunk in size over the decade, offsetting the cost impact from building bigger houses.

In many ways, the desire for larger homes is a logical response to higher land prices. When a vacant block costs $100,000 (3br house plus land $250,000), a buyer is less likely to pay $40,000 to add an additional room than when a block is $200,000 (3br house plus land $350,000), as the proportional increase in price is larger.

Sydney and Perth have the highest median land costs in the nation at $283,500 and $260,000 respectively. Interestingly, both cities are also home to suburbs with the highest concentration of large homes (McMansions) – Beaumont Hills in Sydney’s northwest, and Iluka on Perth’s northern beaches. In both suburbs, four-plus bedroom houses comprise 94% of the housing stock, according to Bernard Salt.

Food for thought…

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

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Comments

  1. The marginal cost of adding another bedroom or two during construction makes ( or made?) bigger, better. Until we get our head’s around ‘quality not quantity’, it’s going to take a while to change that sentiment. Aging, is the catalyst that will bring the change on. The aging don’t want or need that 5 bed, study, pool room construction to furnish, clean and pay all the utility costs on, and as they sell to fewer and fewer buyer with the capacity to afford, or desire to own (who’s got children to out in 5 bedroom these days!) what they want to sell-off, prices for them will deteriorate. Smaller, in size and cost, is going to be come an increasingly popular option.

    • What I want with the benefit of hindsight and seeing what others have done is to have had 5 bed, two storey house that converts to two separate apartments (1X2, 1×3) so my kids can live at home after they buy as FHB’s and get the grant. When we are gone, they both have an apartment.

      When they have partners it won’t matter as they travel so much only one couple would be home at any one time!

      When they have kids we get shuffled off to a 2 bed unit they pay for out of gratitude for our kindness.

      Then it’s god’s waiting room for us!

    • +1 How many younger people are living the 2-3 bedroom unit/house suburbsan dream, yet they live alone with a cat or dog, no local community, no public transport….. Further, in my experience many bought through peer pressure being advised along the lines by friends/family of values always going up (vs smaller apts). Of course it has nothing to do with those trying to pay a mortgage cannot afford to go out and want others to be in same boat…..

    • Funny how people always think that Australias population will become older and older, forgetting that before this happens governments will ramp up population increases so that a few are not heavily taxed to support the many and the countries where these people are coming from are becoming fuller and fuller, just look at the UK 60 million people now, in another 25-35 years time they will be at 80 million, the richer people will want to get out of this kind of “sardining” and move to where there is better prospects and more room.

  2. Apologies if this is defined somewhere…

    What counts as a “bedroom” ? Is that simply any room that isn’t bathroom, kitchen, livingroom ? Ie: where do things like studies and theatre rooms fit in ?

    • Depends on the size of the study, for a start. We had an extension to our house in 1995, adding two bedrooms upstairs. But in the process, some of one of the downstairs bedrooms was taken up by the stairs, so that room is now too small to legally be a bedroom. It has always since been the study, where I am typing this.

      In principle, any room big enough that isn’t in the categories you mention could be called a bedroom. In practice, once you start adding studies, theatre rooms, pool rooms etc you have usually got past the four bedroom home anyway.

  3. Small blocks will be a disaster when the world goes post peak (oil), which is completely predictable and inevitable, and we are all urged, nay forced, to grow as much of our own food supply as possible. 😯

    • Peak oil has turned out to be a bigger flop than the millennium bug. Everywhere I look the cars are bigger than ever.

    • “Small blocks will be a disaster when the world goes post peak (oil), which is completely predictable and inevitable, and we are all urged, nay forced, to grow as much of our own food supply as possible.”

      OMG! I have been THINKING this for a very long time. I find so many like minded people here. Look at NY now (after Sandy),
      In our “modern” cities food/water supply/electricity is centralised. Governments/Corporations have us eating out of their hands. Our society now is dependant on the system working. All it takes is a financial collapse, environmental disaster, peak oil etc, and it leaves us vulnerable.

      My friend’s parents lived thru banking collapses, war, currency collapse, it did not affect them as they lived off the land. No electricity (until 1985) NO water supply delivered to their homes (they had wells U want water U go and get it). As self sufficient as you can get. They would still be affected by environmental disasters (drought etc), but still, unbelievably resilient.

      U know what I think will happen. When push comes to shove, we will demolish those houses (oversupply in outer areas/subdivisions) and create inner suburban community gardens/or large backyards will be back in “fashion”. Or trasform parks/ovals into gardens. Evolve or revolt.

      pardon my grammar and spelling, hopeless I know but A. I am always in a hurry while posting esp at work dont want 2 gwet sacked for blogging. and B. I am not very bright. Grammar is not my strong suit.

  4. The only thing going on here is the physical manifestation of the ‘housing cannot fail to make money’ perception.

    Every person building a house has the mindset that any money spent is recoverable. Housing is a financial asset that will always go up hence any investment is recoverable.

    So the maximum spendable is spent.

    • That is quite possibly part of it, along with a whole host of other reasons touched on in this blog post. I think we also might being seeing the effects of a market skewed towards higher income earners, who I suspect, tend to build larger houses.

      There is also the tendancy towards ‘supersizing’ that janet mentions, where we tend to get sucked in by quantity over quality. I’d guess a big superficially grandiose, but cheaply constructed house, is easier to sell than a smaller high material quality one.

      Then there are local planning regulations which effectively prohibit different forms of housing, like terraces, from being built at all, or the profit motive of multi unit developers who just keep churning out pokey little ‘one size fits all’ two bedder units, rather than more generously sized three or four bedroom ones that could provide a genuine alternative to the traditional detached house.

      • Adding to your observation. Another reason why people decided to built quantity instead of quality is the proliforation of cheap but look good in short term building materials. e.g. cheap laminate floor looks as good as soild timber (in the first six months, anyway).
        remember people only spend upto 30mins to inspect a house, how can they tell if it is good quality? Not everyone is profesional. On the other hand, you cannot lie on size of the house.

        my 2c

        • I remember an old saying from the rag trade:

          “Never mind the quality but feel the width.”

          One can sell anything to the average ” mum and dad” as long as its big and if one can some how use the term 200% bigger then a sale is assured.

          Try this:

          Big return on the investment, large number of attached garages, large number of bedrooms , 500% larger block ( compared to a , not mentioned, 50 square metre block)

          No wonder a number of these “mums and dads” make the evening news.

    • arescarti42MEMBER

      There’s a guy at the University of Canberra called Andrew Mackenzie who did some interesting research in to housing in Weston Creek after the 2003 bushfires.

      He found that houses replacing the ones that burnt down were on the whole much larger and took up much more of the land area (which is not that surprising).

      What I found really surprising was that when he interviewed the residents on why they built bigger houses, most of them didn’t actually want or need more space, they were doing it purely for investment purposes, with the idea that they’d make more money when they went to sell.

  5. Diogenes the CynicMEMBER

    You can justify more bedrooms if you have lots of kids or are going for the multi-generational house. The latter is a strong possibility for me so we have a five bedroom house, 2 for kids, 1 for us, 1 study and a spare for when the in-laws need to be move in. Whilst I enjoyed hearing how my ancestors grew up by regularly sleeping out on the verandah..I ain’t interested in repeating that experience.

    A lot of people in our area have big families 3 or 4 kids seems to be the norm so I can see why they have the McMansions mentioned above – mind you these are actually inner city/beach suburbs and most of them have a reasonable yard as well (1000m2). McMansions on the urban fringe seem a very poor option in terms of selling in 10-20 years time.

  6. Polarised by unaffordablility! To buy a dwelling as an individual, a studio is increasingly the only affordable option.

    If you ‘need’ to provide shelter for a family, it’ll most often be an extended, multi-generation family to pool resources enough to be able to afford a postage stamp 1/8th acre sized plot in fringe suburbia.

  7. I must admit to being a pampered inner-Melbournian; I had no idea about the structure and form of outer suburban life until I worked last year around Pakenham and Berwick.

    New estates condemn everyone to drive EVERYWHERE. An hour each way (or longer) to work; five minutes to the shops. It’s generally not the case that walking or bike riding is encouraged or planned for and as a consequence the obesity epidemic is really prominent in these outer areas. Public transport is not frequent or practicable; I recall seeing a study recently that in Melbourne fringe areas only 1 in 10 people use public transport on a regular basis. Drink-driving is an ENORMOUS problem too – if you lose your license then you almost certainly lose your job too.

    It’s also a frighteningly generic place as Hamish points out; any variety is usually against caveats; back-yards are squeeny (as Revert2Mean and others have pointed out) so it isn’t practical to grow fruit or veggies or even kick a footy. The quality of the dwellings is poor too; there’s extensive use of styrofoam and plastics and a lack of eaves means you can’t keep the sun out.

    Give me an Edwardian terrace any day. If only I had a time machine I’d go back to the seventies when Carlton was a uni student haunt and undesirable… I might actually have a shot at buying one.

    • Another thought about small blocks. Not only are they out of scale with the larger homes being put on them, they won’t lend themselves to redevelopment in the future, in the way that the generously sized blocks of older suburbs do, should the city continue to grow.

      The tiny back yards are a result of setback rules most councils have, which were fine when you had 800+ sqm blocks, but don’t work with the tiny postage stamps they sell now. Seems that superficial street aesthetics trump utility.

  8. As new immigrants, one thing we noticed immediately around us is the tendency to maximise house footprint on the land when building new houses (in the relatively expensive area we live in). i.e. no garden really, replace a small-ish house with a big one. As LVO says, this is only sensible when the land itself is worth close to 1mil and the house only 300-400k.

    • Making it easier for retirees to rent their home and offset the rental income against the cost of the rent of alternate accomodation would help free up some of those bedrooms. A land tax holiday of up to say 5 years in these circumstances would help too.

      I could rent my house in the middle ring of Sydney and we could move to the beach in a unit for a few years of enjoyable retirement living. But if I have to pay tax on the income, no deduction for the rent paid and have to pay land tax on my property as well I can’t afford it, so 2 or 3 empty bedrooms stay locked up/used as studies/storage.

      • Explorer, Retirees can already have tax free pensions plus earn up to $55k per couple without paying any tax due to the tax free threshold and offsets. How much relief do they need to encourage them to rent their home out and downsize to coast or country.

  9. Having built a house recently, the cost of adding an additional room that doesn’t require plumbing (ie bedrooms, theatres, not kitchens or bathrooms) is trifling. When desiging a house, you’re better off erring on the side of having more rooms than you really need, because throwing on an extra bedroom or rumpus room now will be cheaper than the transactions costs you face if you want to move to a bigger house down the track.

    A year or two back I estimated the cost of buying the cheapest block of land available in Canberra and building the cheapest house on it. To double the size of the house on the block (including adding an extra bedroom, bathroom and garage space) would increase the cost by less than 20%.

    • Thanks for the link.

      If you’ve read the full thing a quick summary of the highlights is always appreciated (gives me more time for posting comments!)

    • With regards to lot approvals, this is starting to look like apprenticeships, in that we dont need them any more as we have plenty, a dozen or so years down the track its proved this isnt the case and the “ship hit the proverbial fan” and then we find employment is the highest even and business crying because they dont have enough apprentices, the point im getting through is that because they isnt the demand non are being approved and when they do become in demand again, the price will sky rocket or you just wont be able to buy land for years until large developments come through. (knowing how slow our monolithic governments are)

  10. What Salt’s article suggest to me is that the Australian housing market is diversifying into more niche markets. In many ways this is a good thing, as it means that a greater variety of housing needs are being met. The previous one size fits all three bedroom suburban house never struck me as being a particularly attractive response to the varying housing needs of people at different stages of life. Now all we need is a dramatic reduction in transaction costs (and preferably land costs as well) to make it possible to vary your housing to meet your stage of life and lifestyle needs without selling your soul.