10 ways to accommodate 13 million more people

The latest population projections from the Australian Bureau of Statistics (ABS) have just been released. While getting long term projections correct is notoriously difficult, the reality is that in the next 48 years we are very likely to have a much bigger Australia. The ABS estimates that there will be around 13 million people. Based on this, and a continued decline in average household size, these people will require around 6.2 million new homes. That makes around 129,000 homes required per year for the next 48 years.

1. Most homes required in Melbourne

By 2037, Melbourne is set to be bigger than Sydney and then continue to see far greater rates of population growth than the rest of the country. Of the 6.2 million new homes required, Melbourne will require around 22 per cent of them. Sydney will follow, requiring 15 per cent and then Brisbane at 8 per cent.

This of course could change. As we saw during the pandemic, population in Brisbane increased far quicker than Sydney and Melbourne. Over a long time period, similar shifts could occur to other parts of the country.

2. Much higher densities

Globally, Australia is one of the least dense countries in the world, with a very low proportion of high density housing. While there are many reasons why Australia is very expensive, this is one of them. As our population increases, it will become far more expensive to continue to provide infrastructure to such a widely spread population. To accommodate this many people, Australia will have to increase densities to levels similar to other countries.

3. Solving the missing middle

In Australia, we are good at building very high densities close to our CBDs and very low densities on the fringe. The part that needs more work is the missing middle. Not everyone wants to live in very high density areas, or far from the city. By ensuring greater densities in our middle suburbs, including more housing types like townhouses and larger apartments it will be possible to accommodate a greater range of household types.

4. Many more renters

More people are renting and renting for longer. While only around 30 per cent of Baby Boomers were renting between the ages of 25 and 39 years, over 40 per cent of Millennials are renting at the same age. This change clearly shows we need more rental properties, we need to look closely at the complex drivers of affordability and we need to ensure that renters at retirement are not as adversely affected as they are currently.

5. Greater diversity of rental ownership

Most rental housing is provided by private investors in Australia however as more Australians rent and population growth, we need to look to diversify who provides rental properties. While it is unlikely that Government will be able to step in (Government owned rental properties have been declining for decades), institutional ownership of rental properties will be the growth area. While a tiny proportion at present, Build to Rent will continue to grow in importance.

6. Much smaller homes

Average household size continues to decline. Some 50 years ago, the average household size was 3.1 people per household. Now it is on average 2.5 people per household. During the pandemic, we saw that given the opportunity, many people prefer to live alone and there was a spike in single person households. Since then, rental increases have forced more people back to sharing.

Despite preferences, the reality is that there will be more single person households over coming decades. Australia is ageing and people are living longer. This means more people alone. It is unlikely we can afford to accommodate so many people living alone in large family homes, the dominant housing type at present.

7. Rising government debt means looking at different ways they can assist in building more homes

The government sector doesn’t have a good track record in providing homes directly. The total stock of government rentals has declined consistently over decades. Recent attempts to build a large number of affordable homes in New Zealand by Government has now been abandoned. Like the private sector, the challenges of finding builders, acquiring land and building homes to a budget is not easy and this is no different for Government aiming to do it themselves.

Where the government can assist is by adjusting planning controls and putting targets on housing. A big problem with ensuring enough affordable housing is a lack of density. Changing planning to ensure that more homes can be built in suburbs with very low densities will continue.

In addition, taking a closer look at taxation is also important. Negative gearing has been remarkably successful in keeping rents affordable however recent strong rental increases have shown that more needs to be done to get more homes built. Similarly, tax incentives to other providers of rental properties, including large institutional investors and offshore buyers, can bring in other forms of capital to fund development of homes. As we saw last decade when the greatest number of homes was ever built, foreign funds can lead to positive outcomes for housing.

8. Greater pressure on downsizers

It is difficult to get people out of large family homes as they age. Not only is there the emotional attachment to a home that they may have been in for a long time, but financially, it doesn’t make sense for most to sell a tax free asset. Housing efficiency however is a problem. An analysis by the ABS into spare bedrooms has shown that three quarters of couples without children have two or more spare bedrooms. Overall, there are 13 million spare bedrooms in Australia, a number that will continue to rise as our population ages.

There are some tax incentives to get older Australians to downsize however it is likely that there will be continual pressure to look at solutions. While financial incentives help, a bigger problem is that there often aren’t suitable homes for people to downsize to, close to where they are already living. Greater development in the “missing middle” will assist with this.

9. Greener homes and sustainable design

Saving the environment is obviously important for a lot of people however saving money and living comfortably are likely bigger drivers of homes becoming more energy efficient and sustainably designed. Very hot homes are uncomfortable and can be dangerous. Energy prices are rising, making the cost of a home with low energy efficiency expensive.

There are now laws in place to ensure that new homes reach certain levels of energy efficiency and are built sustainably. In many places, local councils expect certain conditions are met when people renovate their homes. An analysis by Ray White last year of property listings has shown that more people now advertise with details of energy efficient features, highlighting that people see green homes as a positive point of difference when selling a home.

10. More pressure on vacant homes

While short term rentals have been a target for explaining the rental crisis, there are economic benefits to utilising housing in this way. A house left vacant provides no such benefit. Around 10 per cent of homes in Australia are vacant, according to the most recent Census of Population and Housing. Many of them are located in beachside suburbs, some of which are experiencing tough rental market conditions.

It is likely that there will be more pressure on owners of vacant homes. At the most extreme, the City of Busselton plans to implement holiday home bans in some suburbs. Similarly, the Victorian Government has implemented a vacant property tax to combat the issue.

Nerida Conisbee
Ray White Group
Chief Economist