The morphing of the ‘Australian Dream’July 24, 2017 / By
The Australian dream has historically been to own a detached house on a large suburban block, but the dream is changing.
Since 1990, Australia has fairly consistently built around 105,000 detached dwellings per annum. From 1990 to 2010 high-density building commencements were around 45,000 per annum. However, since 2010 this has averaged 85,000 per annum, reaching as high as 115,000 and almost catching up with detached housing (Chart 1).
Chart 1: Rolling Annual Dwelling Commencements by type (Australia)
As at December 2016
Source: ABS, JLL Research
The other significant trend we have seen is a greater proportion of the population renting. Newly released 2016 census data shows that around 30.9 per cent of Australians are now renting, which has been on an upward trend since a low of 26.3 per cent in the 2001 census (Chart 2).
Chart 2: Proportion of Australian Households Renting
Source: ABS Census Data from 1996 to 2016
Are these changes just cyclical or a more permanent structural change?
While there is undoubtedly a cyclical element to Australia’s recent apartment building boom, much of the change appears a more permanent shift in our housing preferences.
Low affordability is the obvious suspect being blamed for both trends. However, even in the rampant Sydney and Melbourne markets, the extremely low interest rate environment means that affordability is still short of all-time lows. Outside Sydney and Melbourne, residential prices remain relatively affordable in a historical perspective.
It is true that higher capital values make saving a deposit harder and keep people in rentals longer (and perhaps in cheaper apartments). However, it is also likely that these shifts run much deeper and that there has been a change in the mindset of younger Australians towards home ownership and detached housing. It is clear that more generation Ys and Millenials are making a conscious lifestyle decision to stay renting apartments in trendier inner urban neighbourhoods with greater amenity; they are ‘trading space for place’.
Foreign migrants and capital is also driving the shift to apartments
A less talked about driver of both trends is migration. Australia’s population has been growing faster than most western economies (1.6 per cent pa over the past five years) and international migration has shifted from the United Kingdom and other Western countries, towards wealthier migrants from Asia that are used to living an urban apartment lifestyle.
The inflow of international capital and developers has also influenced the shift to apartments, with the market much easier to break into than the detached housing market.
So the bottom line is that both the trends are not likely to disappear any time soon. This will support the case for the many domestic and international capital sources currently looking at how to develop a multi-family sector in Australia.
In turn, a multi-family product offering with strong amenity will only further strengthen the case for young Australians to become long- term renters in great locations and invest their money elsewhere (perhaps even into multi-family REITs). For Gen-Y and Millenials, detached housing in the suburbs was their parents’ dream and they are re-defining the dream.
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