Sydney, Melbourne, other city hotspots emerge as multigeneration housing grows

Most of Australia’s housing stock follows formats laid out in the 20th century. Yet demographics and the property market have undergone profound changes since then.

One of the ways the market is responding is a rise of multigeneration housing - where parents and their adult children live at the same address.

This trend offers great opportunities for investors in the know, as well as for families confronting one of the world’s most expensive real estate markets.

But there are risks aplenty for the uninitiated.

Where is multigeneration housing happening?

Data from the Australian Bureau of Statistics (ABS) shows average household size is rising. This is thanks in part to a 22 per cent rise from 2016 in multigenerational (MG) households, up to 335,000.

The majority of MG households have adult children in their twenties living with their parents. But the fastest growing type of multigenerational home buyers is ‘New to Australia’ families.

In particular, ethnic Chinese along with Indian families, Vietnamese and migrants from the Middle East are strongly represented.

That makes areas with a relatively high proportion of these migrants a first stop for investors.

While I have purchased a number of multigenerational clients properties myself, I wanted to crosscheck my understanding with my associate, Michael Kimbel, who operates across Melbourne’s eastern suburbs.

“Multigenerational buyers are definitely a factor here,” Mr Kimbel said.

“Chinese buyers have been significant for at least 20 years and we’ve noticed more MGs from India and elsewhere in Asia for the last decade or so.

“It’s often working age children driving the purchase, with mum and dad contributing their savings and some of the childcare.

“Occasionally we do see other arrangements with say, two brothers with young families, buying together along with a grandparent.”

From my experience, there are also plenty of these arrangements from long established Australian residents from southern Europe.

Is the Bank of Mum and Dad on the way out?

But perhaps the most interesting group is your average Australian family, from whatever background, with Generation Z kids.

This is not that surprising when you consider the daunting task facing young Australians. The median capital city house is now attracting a price of 10 times the average full-time income and the average HECs debt now taking 10 years to pay off.

For the vast majority of Australians born in the internet age, buying housing outright seems an impossible dream. So why not pool your resources with the rest of the family to get a stake in the real estate juggernaut, via the so-called Bank of Mum and Dad?

Multigenerational property types

There are two basic formats of properties that work well for the multigenerational market.

The first of these is a reworking of an Australian classic: the granny flat.

This format has enjoyed a resurgence following state governments’ moves to drastically reduce planning restrictions on what they term ‘dependant persons units’.

They have also proved popular with a building industry looking to add an affordable product to their range.

But the newly reimagined 21st century models are quite different from the old days. Fibro huts with a TV room, a galley ‘tea kitchen’ and toilet are definitely out.

Instead, the best-selling types feature two bedrooms, a practically sized kitchen, bath/shower and an open plan lounge/dining along with a balcony.

The new age self-contained unit in the backyard typically costs around the $150,000 to $200,000 mark.

The second format is a modification of that other Australian classic: the southern European ‘family palace’.

These brick homes were built in their tens of thousands from the 1970s through to the turn of the century, which finds them spread across middle and outer metro areas.

As they often feature four bedrooms and expansive kitchen and lounge/dining areas, many can be modified to meet MG living requirements.

One of the most common ways is to adapt the existing floor plan with a ‘guest suite’ through the entry of the home. This allows for separation from other bedrooms and living areas.

The other popular adaptation is the upstairs-downstairs model, where each level provides separate living while typically sharing a kitchen and laundry on the ground floor.

Where to find granny flat property

The best place to find suitable properties depends a little on the format type.

But for investors especially, it is land size that is the common denominator.

In most states, authorities have applied a minimum lot size of 300sqm before a house can host a backyard unit. But realistically, lots should be at least double this to comfortably accommodate the unit.

According to Mr Kimbel, some of the best suburbs hosting properties with the right combination of lot size, house and buyer type in Melbourne include Forest Hill, Nunawading and Blackburn in the eastern suburbs.

Here, not only do we find the right attributes accommodating this particular market but scores of locations that have the other factors that drive property values, such as good public transport, shops and schools.

Applying the same logic, in the Sydney market the best areas to start are in a broad arc ranging from West Pymble to Frenchs Forest.

For multigeneration house conversions, there are more options but location is more important.

Many of these ‘family palaces’ were built in outer suburbs with lower land values around major roads. Examples include around Elizabeth in Adelaide’s north, Joondalup in Perth and Sunshine in Melbourne’s west.

But where you find these homes closer to transport shopping and other modern amenities, the prospects for the investor wanting higher capital growth are stronger. 

I recently bought just such a house for father and son clients in Melbourne’s Preston, and similar style homes can be found in areas like Ashfield in Sydney’s inner west, Torrensville in Adelaide’s west and Stafford Heights in Brisbane.

As house prices look set to keep moving upwards, the multigenerational buyer is one of the more interesting new buyer types for investors to keep in mind.