Shrinking households present shifting investment opportunities

Australian households are shrinking, and this provides a significant opportunity for all of us, but perhaps older Australians in particular.

Between 2016 and 2021 the number of people in each Australian household dropped from 2.6 people to 2.5 people.

Not a big change, you might say, but in reality it is. If the Australian population didn’t change at all we would need another 70,000 houses just to adjust for this 0.1 people change.

The total number of households (dwellings) in Australia increased by 10 per cent between 2016 and 2021.

However, not all types of dwellings increased by the same amount. One-bedroom and four-bedroom dwellings increased at double the rate of overall housing (19 per cent and 21 per cent respectively). Whereas three-bedroom dwellings increased at half the rate of overall housing (5 per cent).

The increase to four-bedroom housing could be a by-product of the suburban tree change movement, which was inspired by the pandemic. However, a similar trend has transpired for the last three Census’ in a row.

I think it’s more likely we are seeing people convert typical post-war three-bedroom houses in suburbia into four-bedroom homes.

Trend towards one-bedroom properties

It's the one-bedroom trend that jumps out at me, and it has only occurred in the last two Censuses.

It can’t be a coincidence that the one-bedroom trend coincides with the fact our population is getting older (17.8 per cent of Australia’s population is aged over 65 today, compared with 15.8 per cent in 2016), and we’re seeing an increase in the proportion of Australians separated and/or choosing not to have children.

One-bedroom housing has typically been supplied in the form of inner-city high rises.

But what if you’re an older couple, a couple without children, or a divorcee, and you don’t want to live in a one-bedroom apartment in the inner city?

What if, instead, you wanted to be closer to your friends and family in the suburbs, but don’t want the excessive cost of a three- or four-bedroom house you don’t need.

I think there is a massive opportunity over the next decade to provide one- or two-bedroom housing outside of high rises and inner-city living.

I’m thinking smaller blocks of land, granny flats, Fonzie flats and even shared housing in suburban communities on blocks of land or low-rise apartments.

It provides an affordable, low-maintenance option for grandparents wanting to be close to their kids, grandkids and the friends they’ve raised their families alongside.

It provides a cost-effective solution for separated families conscious of now having two sets of living costs and wanting to find a way to efficiently share parenting duties.

Homeowners and investors can benefit

For homeowners, it could provide an opportunity to offset mortgage costs with an additional income stream. For older Australians, who presumably bought their homes on big blocks of land and for a fraction of what they are worth today, it could be their income in retirement.

For investors, it could provide multiple income streams from the one block of land: be it two tenants in the one house, a separate granny flat or even a lump sum amount from the subdivision and sale of part of their land.

The Queensland Government did a great thing in September 2022 removing all the restrictions on renting these secondary dwellings. Those changes were meant to be temporary, expiring in September 2024.

Hopefully, they make them permanent because, without them, most councils either don’t allow it or make it unfeasible with extra costs and slow approval processes.