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Property Investors See Value in Small Homes

It’s official – Australians build some of the largest residential dwellings in the world. however, while the size of Australian homes have consistently topped world rankings for size, new data shows that this trend is likely to be reversed. With a growing preference for smaller properties in Australia, investors have realised the value in a smaller, more efficient investment property.

Growth of Smaller Dwellings

According to Stockland, one of the country’s largest developers, affordability issues mean the size of homes in Australia has peaked, with a trend away from ‘McMansions’ toward smaller more efficient homes. They have  seen a growth in smaller three-bedroom and two-bathroom homes, coupled with a decline in demand for five-bedroom residences.

The following figures point strongly toward smaller homes by square metre.

  • The average size of four-bedroom houses has dropped by 20 per cent since 2007.
  • The size of three-bedroom homes fell by 26 per cent in the same period.
  • Media or entertainment rooms, living areas, and hallways have become less common in compact design houses.

Demand Drivers for Smaller Homes

Cost and efficiency are the key driving factors behind the growing demand for smaller homes. Cutting just 70 square metres from a design can increase affordability by saving the buyer up to $60,000.

Rising energy costs is also another factor behind the shift toward smaller houses and higher density living solutions such as apartments and townhouses. Buyers and renters save money by foregoing extra space in the form of additional recreational rooms, or a separate dining room.

More Small Apartments Being Built

According to Australian Bureau of Statistics (ABS) figures, Australia is still building the largest homes (both houses and apartments) in the world at an average of 214.1 square metres per dwelling. This figures is around 10 percent larger than the average for the US and New Zealand.

However, the ABS statistics also indicate that the size of housing in Australia has peaked.

  • In 1975 the average home was around 150 square metres.
  • In 1995 it had risen to 175 square metres.
  • In 2005 it rose to 210 square metres.
  • Australia’s average home size hit an all-time-high of 248 square metres in 2008/09 before falling to 214.1 square metres in 2010/11.

Figures for apartments show the same trend:

  • Based on ABS figures, apartment sizes peaked in 2004/05 at 143.7 square metres.
  • In 2009/10 new apartments average a 143.4 square metres, then 133.7 square metres in the nine months to March 2011.

Preference for Smaller Apartments

One of the main reasons behind the decline in home sizes is the fact that household sizes (that is the number of people living in a dwelling) have declined over the past few decades from 4.5 people in 1911 to 2.66 people in 2011. The ABS projects an average of 2.3 people per household by the year 2026.

Implications for Property Investors

Baby boomers close to retirement and Generation Y and X have demonstrated a preference for smaller homes close to good transport, work, dining, and entertainment. The shifting trend toward higher density living can present good opportunities for property investment. Higher rental yields and good capital growth may be associated with properties in this emerging category, a category that looks set to inhabit an important portion of new development projects in the future.