Downsizers creating upsized property investment hotspots

Over the last decade a new buyer type has emerged and become increasingly influential in the housing market.

Downsizers is the somewhat awkward name given to this group. For the most part, they are mature aged couples selling up and buying into the inner suburbs lifestyle, leveraging their long-term equity growth in the family home.

Numbers are a little hard to come by as most real estate information services don’t identify this buyer type but there are some good clues as to their strength.

If you’re an investor, how much attention should you pay to this new trend?

Last year, cash only buyers of real estate Australia wide peaked at 25.8 per cent of buyers. We can reasonably assume that most of these were mature aged Australians either moving away from the suburbs and towards the inner city or to the coast.

The phenomenon is being supercharged by three factors.

The first is the excellent long term performance of most Australian real estate provides long term owners with an asset windfall, should they choose to use it.

Secondly, an ageing society means the real estate preferences of older generations are becoming more influential as each year passes.

As this chart shows, Australia’s aged community has soared and is expected to keep growing as a proportion of the population.

And thirdly, Australia’s approach to urban planning means large swathes of metropolitan areas have been designed as car friendly, dormitory suburbs. These may be practical for working families but they can prove a little boring for everyone else.

In 2022, the Australian Housing and Urban Research Institute (AHURI) conducted a study to find out how prevalent the downsizing trend was.

Their data shows just over a quarter of mature aged Australians had downsized and another 29 per cent were thinking about it. 

The major reasons they were considering downsizing included lifestyle (27 per cent), optimising finances (27 per cent) and maintaining a home and garden was becoming a burden (18 per cent).

When it came to property preferences, downsizers were three times as likely to target a two-bedroom dwelling as the rest of the market and four times as likely to target a one-bedroom dwelling.

Downsizers are an important part of business in auction sales across inner and bayside Melbourne.

My colleague in Sydney, Anjay Zazulak, tells me downsizers are a significant factor in the market there too, but their movements tend to be more localised.

“We work a lot with downsizers selling in upper North Shore and moving to lower North Shore. Right now, we are working with a couple who want to sell their Cherrybrook home and buy a townhouse or spacious unit in the Waverton area and bank the difference”.

“In other parts of Sydney, such as the east and west, they tend to stay closer to the area where they’re currently residing.”

While localism is prominent in Sydney, across the rest of Australia, downsizers tend to move.

According to the AHURI study, 42 per cent shifted to a new neighbourhood and 37 per cent moved to a location they knew. Only 22 per cent downsized in the same neighbourhood as their original dwelling.

Implications for real estate market

With the drivers for an ageing society likely to remain in place, downsizers will play an increasingly important role in which property markets will perform best.

That reality is running headlong into the way Australia develops its cities.

While much of the recent talk around housing has focused on supply (which, at best, is only a part of the problem), very little focus has fallen on the growing mismatch between what growing parts of the market want and what the construction industry is building.

New home supply is heavily weighted to large family homes (a falling demographic) and high density complexes full of units with tightly constrained floorplans.

The property types downsizers are most interested in, comfortably sized units and townhouses, are a bit of a forgotten species.

What should investors take away from the growth of downsizers?

If you’re looking to invest in property across any of Australia’s metro markets, having an eye on these buyers is smart.

As their numbers increase with time so will the average amount of money they bring to their purchases.

Governments are also starting to take notice, providing stamp duty relief in some states and allowing retiring Australians to contribute up to $300,000 of a downsized home sale to superannuation.

Best suburbs for investors looking to capitalise

The mismatch between these buyers and the types of property coming onto the market points to above average long term growth for shrewd investors.

The right areas to look are those offering easy access to the inner city lifestyle but which retain high residential amenity. Suburbs like Victoria Park (WA), St Kilda West (VIC), Annandale (NSW) and Norwood (SA) typify the locations investors should focus on.

The best properties are those which provide at least 65 square metres of living space and two bedrooms along with a small outdoor area or balcony.

Perhaps the best option of all are two bedroom freestanding cottages in an inner suburb with good amenity.

These are a disappearing breed, as many of them have been extended into bigger properties, but those boasting a relatively open floorplan within the original exterior walls will remain hot property.

Spacious two bedroom apartments in small 20th century complexes with a parking space are popular with this group.

For those considering newer apartments, stay away from high rise and focus on mid-rise complexes in areas like Port Melbourne (VIC), Cremorne (NSW) and Fortitude Valley (QLD).

Comfortable one-bedroom apartments in the right locations should also benefit but they have to be well selected to match the needs of mature Australians.

If you’re buying to capitalise on the rise of the downsizer, make sure your selection meets this group’s lifestyle aspirations and ability to move around at home and your investment should upsize over time.