‘Little incentive’: Frustrating factor adding to Australia’s grim housing crisis revealed

One major factor in Australia’s housing crisis has been simmering for decades – and older Aussies are right in the thick of it.

ANALYSIS

From backyard barbecues across the country to the halls of federal parliament, the issue of the ongoing housing crisis is never far from conversation and debate.

Despite Australia building the fourth highest number of new homes per capita in the Organisation for Economic Co-operation and Development (OECD) relative to overall dwelling stock, a number of different factors have combined to create the mess the nation currently finds itself in.

Since the pandemic arrived on our shores, the way we live and worked has changed dramatically, transforming demand for housing. At the same time, population growth has risen to its highest level ever in nominal terms and the highest level since 2009 in per capita terms.

Outgoing Reserve Bank of Australia (RBA) Governor Philip Lowe recently warned that rental price growth would remain high for “a long time” and that high population growth was a major factor.

“The population is increasing by 2 per cent this year, are there 2 per cent more houses? No,” Lowe said.

There are around 13 million bedrooms going to waste across the nation – but older Australians are refusing to budge.

It’s worth noting that unlike the previous period of high population growth in 2008-2009, the increase in the population is being significantly more heavily driven by the immigration of adults, rather than the birth of children. This leads to significantly greater demand for additional housing, as children join existing households, not create new ones.

But there is another factor playing a supporting role impacting the supply of housing that has been slowly simmering away for more than a decade – the rise of the empty nester and the empty bedrooms that comes with it.

Before we get into the data, the purpose of this analysis is to illustrate this issue, not suggest how anyone should or shouldn’t live.

The nation’s empty bedrooms

According to the latest data, across the nation there are more than 28 million bedrooms.

It’s worth noting that the Australian Bureau of Statistics (ABS) does not measure the number of bedrooms in dwellings that are not occupied on census night, which account for almost one in 10 properties overall.

Of the total number of bedrooms, an ABS survey concluded that around 46 per cent or 13 million were empty during 2019-20. This figure is up 300,000 since the last report from the ABS in 2017-18.

More than 70 per cent of households have at least one spare bedroom.

While more than 70 per cent of households have at least one spare bedroom as defined by PropTrack, couples without children and single person households stand out for being significantly more likely to have two or more spare bedrooms in their homes.

Many of the households in these two demographics are likely empty nesters – older Australians who raised children who have moved out and have places of their own.

Despite the popularisation of downsizing in certain quarters, most Australians are reticent to walk away from the family home.

Couples without children and single person households stand out for being significantly more likely to have two or more spare bedrooms in their homes.

“Australians downsize when the family home becomes a nuisance to manage, or becomes a physical hazard” Demographics Group co-founder and demographer Simon Kuestenmacher said.

Considering the average set of circumstances potential downsizers face, this is understandable.

Transaction costs such as stamp duty and agents’ commissions have risen to be as high as $75,000 in some of the national’s capital cities.

At the same time, the sort of housing stock that is generally desirable for those looking to downsize, such as small freestanding houses, townhouses and larger apartments, are often in short supply.

With this factor and others driving up prices of the downsizing alternatives, the gap between the price of the larger family home and the desired alternative is often not that large after transaction costs.

This serves to incentivise older Australians to stay in their family homes, because there is often a minimal upside to walking away from the family home and potentially other significant downsides.

Another factor disincentivising downsizing is the aged pension assets and income tests.

With the median capital city house worth more than $1 million, selling the family home and moving into a much cheaper alternative could lead to pension payments being reduced, potentially significantly.

Impact on the housing crisis

While far from the main driver of the housing crisis, the disincentive to downsize is slowly having a more and more significant impact on the supply of family homes into the market as time goes by.

While older Australians have always tended to stay in the family home, the major change is that the Baby Boomer generation is much larger than those that came before it.

As the population continues to age, the impact of this issue will continue to grow and may in time become a political issue.

In 2005, 17.5 per cent of households were headed by someone 60 years of age or over. As of 2023, that proportion has risen to 22.9 per cent. This change has played a role in depressing rates of housing turnover, which has also provided support for housing prices, as potential buyers compete over a slowly diminishing supply of stock coming to market.

As the population continues to age, the impact of this issue will continue to grow and may in time become a political issue.

Ultimately, Australians should be able to choose how they want to live.

Some would dearly like to downsize for a variety of reasons, but between the high cost of desirable alternatives where they retain their support network and high transaction costs, there is often little incentive to do so.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator