One and two bedroom apartments are in oversupply, and demand for family homes is strong.
The boom in the number of small apartments in Sydney and Melbourne is doing little to provide housing for Australian families.
Most detached homes are being built in the outer suburbs. And there is a dearth of large apartments in the inner-city and middle-ring suburbs.
Yet research shows that in future, the greatest future demand for housing will come from migrants and the younger members of existing households, who will eventually want their own family homes.
The assumption that rapid growth in the number of one and two-person households will flow through to strong demand for small apartments is flawed. In fact, those households are made up mainly of the elderly, who usually stay in the family home. Older Australians are not freeing up housing stock by downsizing.
The Australian Population Research Institute’s Housing Affordability Crisis report, by Dr Bob Birrell and David McCloskey, revealed the extent of the problem. In 2011, 50-60% of separate dwellings were occupied by householders aged 50 or more. They predict this percentage will rise as the number of aged increases.
There’s little reason for the elderly to downsize. They are staying healthier for longer, they might enjoy their garden, they can have family to stay, and they remain in a familiar community. The family home is also a significant nest egg in case of an emergency.
The report, released late last year, predicted a glut of small apartments, which is proving to be correct. Rents are falling in Sydney, and vacancy rates are on the rise in Melbourne.
So how will Sydney and Melbourne meet the expected strong demand for family homes?
Inner-city houses and houses within 10km of the city are out of reach of most Australian families.
More families will buy houses in the outer suburbs.
But if yields continue to fall, and if owners can’t find tenants, the laws of supply and demand will kick in. Developers might find that building family-friendly apartments is the best investment.