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Australia’s Shrinking Family Size – How does it affect the property market?
Australia's shrinking family size

The dynamics of household size in Australia are undergoing a significant transformation, with profound implications for the country’s property market. As households shrink, there’s a notable shift in housing demand, buyer preferences, and investment opportunities.

Average household size
The average Australian household size reduced by two people between 1910 and 2021.

Australia’s family size is shrinking due to several factors:

  1. Increasing Number of People Living Alone: There has been a rise in the number of individuals choosing to live alone, which contributes to smaller household sizes.
  2. Economic Pressures: The high cost of raising children is prompting Australians to have fewer children or opt not to have children at all, leading to smaller family sizes.
  3. Historical Trends: The average household size has declined over time, reaching historical lows of around 2.5 people per household. The average Australian household has shrunk from 2.6 people in 2016 to 2.5 people in 2021 – the first decrease in household size since 2000
  4. Changing Demographics: There’s a shift in household composition, with more young couples without children, contributing to smaller family sizes.
  5. Divorce and separation rates in Australia have increased since the COVID-19 pandemic: During 2020 and 2021, there was a significant surge in divorce filings, with a record 49,625 couples filing for divorce, marking an 8% increase over the previous year. This increase can be attributed to various factors, including heightened stress levels, financial strains, and changes in lifestyle dynamics due to lockdowns and restrictions imposed during the pandemic. While the exact impact of COVID-19 on divorce and separation rates may vary over time, the initial surge suggests a notable trend towards higher dissolution of marriages and relationships.

This article delves into the various ways in which Australia’s shrinking family size is affecting buyers’ property buying choices, exploring insights from recent studies and market observations.

Household composition
The proportion of one-person households in Australia has climbed over the past 40 years.*

 

  1. Shift in Housing Preferences: As household sizes decrease, there’s a noticeable trend towards smaller, more manageable homes. This shift reflects a preference for properties that require less maintenance and offer greater efficiency in space utilization. Smaller households may prioritize functionality and convenience over larger living spaces, driving demand for compact and well-designed residences. This preference for smaller homes also extends to urban areas where space is limited, leading to a rise in the popularity of apartments and townhouses.
  2. Demand for Family Housing: The reluctance of older Australians to downsize contributes to a shortage of family housing options. With older individuals choosing to remain in their larger homes, there’s increased competition for properties suitable for families. This imbalance in supply and demand affects buyer choices, particularly for those seeking spacious homes with multiple bedrooms and outdoor space for their families.
  3. Impact on Asset Selection: Investors considering purchasing properties must take into account the changing dynamics of household sizes. Properties that cater to smaller households or offer flexibility in terms of usage (such as smaller houses, townhouses and apartments) may be more appealing in markets where shrinking household sizes are prevalent. Understanding future demand trends influenced by household sizes is crucial for making informed investment decisions.
  4. Diverse Housing Preferences: The evolving nature of Australian households leads to increased diversity in housing preferences. As family structures change and lifestyle preferences vary, buyers seek properties that align with their specific needs. This diversity encompasses a range of housing types, from traditional single-family homes to modern, multi-functional dwellings. Developers and sellers must adapt to these changing preferences to remain competitive in the market.
  5. Home Ownership Trends: Declining household sizes can have a significant impact on home ownership rates over time. Smaller households may face different challenges and priorities when it comes to homeownership, potentially leading to shifts in the proportion of owner-occupied versus rental properties. Understanding these trends is essential for policymakers and market analysts to develop strategies that promote sustainable homeownership and address housing affordability concerns.
  6. Budget Constraints and Price Pressures: Shrinking household sizes may affect buyers’ budgets and exert pressure on home prices. With smaller households having potentially lower purchasing power, they may be more sensitive to price fluctuations in the housing market. Additionally, increased demand for smaller, more affordable homes may drive up prices in certain segments of the market, impacting affordability for both buyers and renters. Economic factors, such as interest rates and income levels, further influence the interplay between household size, budgets, and property prices.

These factors collectively shape the dynamics of the property market and influence buyer behavior, highlighting the need for stakeholders to adapt to changing household size trends for sustainable growth and development.

Image credit: Freepik

*Notes for graph: Data for 1981 were derived from the 1981 Census 1% Household sample file. In 1986, household membership was based on where the person was enumerated on census night. In 1996 and onwards, households were classified according to ‘usual residence’ for up to three residents of a household who were temporarily absent on census night. Excludes ‘visitors only’ and ‘other non-classifiable’ households.  
Source: ABS, 1981–2021 Censuses

References: 

  1. aifs.gov.au – Households shrink as more people living alone
  2. rba.gov.au – A New Measure of Average Household Size
  3. news.com.au – The enormous cost of raising kids is forcing Aussies to have fewer children or none at all
  4. statedevelopment.qld.gov.au – Shrinking households and dwelling demand, what does it all mean
  5. aifs.gov.au – Population and households
  6. afr.com – Households shrink when COVID-19 knocks on the door

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