14/11/2012 - 07:22

Questions raised over housing demand as Gen Y chooses to stay home

14/11/2012 - 07:22


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Property experts are divided on the question of how much housing is needed to meet WA’s growing population.

Questions raised over housing demand as Gen Y chooses to stay home
UNTRUE: Stewart Darby says the last couple of national censuses have proved the shortage of housing supply compared to demand is a furphy. Photo: Annaliese Frank

Property experts are divided on the question of how much housing is needed to meet WA’s growing population.

HISTORY suggests that a combination of low interest rates, falling mortgage costs and an increasingly tight rental market, driven by strong population growth, will create conditions sufficiently encouraging for first home buyers to return to the property market.

Times are changing, however, and the next generation of home buyers is not following the storyline of the past.

Some experts believe underlying demand for housing may be lower than commonly thought, as a high proportion of the 18-32 year olds that comprise Generation Y continue living in the family home far later than their predecessors.

Real Estate Institute of WA executive manager research and policy, Stewart Darby, told WA Business News that changes in the number of household occupants and unoccupied dwellings in recent years discredited prior estimations of underlying demand.

“There’s this notion that there’s a dramatic shortage of housing supply compared to demand,” Mr Darby said.

“The last couple of censuses have proved this to be quite a furphy.”

Mr Darby, who also acts as chair of the Housing Industry Forecasting Group, analysed 100 years of census data to 2011 and found that a constant decline in the average number of household occupants in Western Australia had come to a halt and lifted slightly over the past decade.

Over the same period, the number of unoccupied dwellings increased by 22,000 to 109,000, or 12 per cent of all dwellings.

The findings are significant, as the average number of household occupants is seen as a key indicator of underlying demand for housing, alongside population growth and housing stock levels.

Empty dwellings

While holiday homes continue to account for a large percentage of unoccupied dwellings, Mr Darby said there had also been strong growth in unoccupied houses in non-holiday metropolitan areas.

“The growth in the unoccupied stock has been quite amazing, when you think that we’ve added 22,000 in the last 10 years to the unoccupied stock, and yet even our underlying demand model says that we’ve got a shortfall,” Mr Darby said.

“It does highlight that we’re probably building enough houses to meet the population growth but they’re not necessarily in the right locations (or) at the right prices.”

The HIFG has put the underlying dwelling requirement in WA at just under 22,000 per annum; a far more conservative figure than the 3 8,000 per year earlier forecast by the National Housing Supply Council.

“We’re at odds with the NHSC because they’re basing their calculations (solely) on population size, even though we’ve alerted them to changes in household formation trends,” Mr Darby said.

An increase in fertility rates had coincided with members of Gen Y putting off buying their own homes and choosing to live with their parents for longer.

“The world has changed in a generation. You may see that (the number of) persons per household will have increased by the next census,” Mr Darby said.

McCrindle Research director Mark McCrindle said research undertaken by his firm last year revealed that, for all of the households to downsize in the number of occupants, twice as many upsized, as large numbers of previously independent young people returned to the nest.

“It’s a generation staying in education for longer, therefore earning an income later and in many ways, their lifestyle expectations are higher than ever before,” Mr McCrindle told WA Business News.

“From a social trends perspective, it’s a generation that’s going through major changes later in life. Marriage, mortgage, children, career -these things are all being pushed back.”


However, Urban Development Institute of Australia CEO Debra Goostrey was sceptical that Gen Y was less interested in home ownership than previous generations, suggesting affordability was the key issue driving household occupancy trends.

“There is a little bit of that but I would suggest that there’s a level of affordability that is coming into the Gen Y’s choosing to stay at home longer,” Ms Goostrey told WA Business News.

“Certainly in some cases they’re staying home because it’s very comfortable at home, but for others they simply can’t afford to move out. If we can fix the affordability mix we’d probably see the number of people per household falling.

“We are getting more affordable new product but you’ll probably see for quite some time the number of people per household at least as high as it currently is, maybe even going higher, because the cost of renting is so high so they need to share the premises.”

While housing affordability has improved over the past year, it remains a barrier for many potential buyers.

With Perth’s estimated median income at $81,000 per annum, the average household would have been able to access only 14 per cent of houses and apartments sold in the June quarter, according to the HIFG.

Market improvement

Although they remained divided on the issue of underlying demand, the leading industry figures to speak with WA Business News were unanimous in predicting a modest recovery in the housing construction market in 2012-13, driven by strong first home buyer activity

Mr Darby said about 34 per cent of new mortgages in the September quarter were taken on by first home buyers, an unprecedented high for a non-stimulatory boost period.

“We’re in a market environment where first home buyers are buying because they choose to not just because they’re being stimulated to do so,” he said.

The HIFG’s October report projected an increase in the number of new dwelling starts for 2012-13 to 21,000, a 20 per cent increase on the previous period.

Despite this, any potential recovery is coming off significant lows in 2011-12 and there are still several indicators of weak demand.

The forecast pick-up in construction activity follows a slump in dwelling starts to just 17,500 in 2011-12, the lowest level in the past decade.

Ms Goostrey said a boost in housing loans to pre-GFC levels in recent months was a positive sign, but added that it would take some time to restore faith in the market.

“We are much more confident that the recovery is starting to stick, but it is still quite patchy,” she said.

“You’ll get some developers and builders who are saying they’re really, really busy, but you’ll get others who are saying it’s still very gloomy, so it’s patchy both geographically and in price range.”

The total number of seasonally adjusted loans for the construction and purchase of new homes increased by 1.6 per cent in WA for the September quarter, according to the Housing Industry Association.


The HIA’s economics group’s November research note identified several constraining factors preventing a recovery in new home building activity across the nation.

These included banks not passing on interest rate cuts in full, households focusing on paying down debt, and I fears of a housing bubble among prospective home buyers.

A 125 basis point reduction in the Reserve Bank of Australia’s cash rate has brought the average standard variable mortgage rate down by just less than 1 per cent since October last year, according to the UDIA.

Ms Goostrey said the UDIA’s research suggested a lack of confidence in job security and the economy at large was spooking potential upgraders.

“Where we need to go is to see the middle market picking up so that we get the upgraders into the house-building area,” she said.

“They need to be confident that they can sell their existing home and then be confident to move into building their own home.

“It’s becoming critically important because we are now becoming statistically very short on our number of dwellings compared to our population growth, so we need to get new homes built.”

Perth house sales were around 15 per cent below the 15-year average in 2011-12, with the number of properties listed for sale reaching a peak of more than 18,000 in April 2011.

The number of properties currently listed sits at 10,400, well below the equilibrium of 12,000.

A fall in the number of properties listed is not necessarily indicative of strong turnover and may instead reflect sellers choosing to take their properties off the market for a number of reasons.

However, Mr Darby said preliminary analysis indicated the low number of listings at present was tied to the strong surge in first home buyer activity.

Edging up

The Real Estate Institute of WA’s September quarter report revealed overall residential turnover was up 20 per cent oil the same time last year, although slightly down from the previous quarter.

The average property listing time is currently 71 days, down from last year’s peak of 82 days but still a far cry from the boom in mid-2006, when buyers snapped up properties within 36 days of their initial listing.

In normal conditions, the elapsed time between a property being listed on the market and the exchange of contracts is expected to be around 45 days.


WA’s population growth continues to outpace the rest of the nation, driven largely by strong overseas migration.

The soaring population has put significant pressure on the rental market, with Perth’s median rental price jumping to $450 per week and the vacancy rate falling to 1.8 per cent, well below the 3 per cent equilibrium.

While the lure of the resources boom has resulted in increased interstate migration in recent years, it makes up a relatively small proportion of total population growth.

Overseas migration accounted for almost two thirds of the state’s population growth from 2000 to 2011. according to the Committee for Perth, with interstate migration representing just 2.5 per cent of growth and natural increase accounting for the remainder.

Mr Darby said the rise in the number of migrants coming to WA in recent years was likely to have influenced the strength of the first home buyers’ market.

“Everybody seems to think of first home buyers as being at the shallow end of the dream pool, but that’s not always the case,” he said.

“What you’ve got to think about is that some people who immigrate to Australia come in with bags of gold.”

Another trend to emerge in recent years is that the gap between rent prices and mortgage repayments has narrowed, creating an incentive for buyers to enter the market for the first time.

An RP Data analysis earlier this month revealed that it was cheaper to buy a house than to rent one in 44 suburbs in WA, although only six of these suburbs were located in the metropolitan area; a reflection of the generally soft regional market at present.

While incentives such as the First Home Owner Grant have fuelled interest, the majority of first home buyer activity continues to be restricted to those on higher than average incomes.

First home buyer households earned, on average, a pre-tax income 19 per cent above the national average, a 2011 report from the Australian Bureau of Statistics found.

The same report found that three out of five first home buyer households relied on more than one income and that successful applicants were more likely to have pursued nonschool education than the general population.

Almost 20 per cent of first home buyers lived with their parents immediately prior to purchasing their own home.

Mr McCrindle said that while a mortgage in 1973 cost approximately five times the average Australian’s annual earnings, it now costs around 10 times the average income.

Such pressures mean it had become increasingly normalised for young people to continue living in the family home until they could afford to move out without compromising their lifestyle.

Gen Y tends to be more debt-averse than previous generations, Mr McCrindle said, but this did not necessarily mean it was smart with money.

“They’re not that keen on getting a massive debt in terms of a mortgage but at the same time they’re not that thrifty,” he said.

A 2011 survey conducted by mortgage insurance provider Genworth found that the average age of first home buyers has risen to 31 years, up from 25 years in the 1970s.

“There’s no social stigma in staying with parents anymore,” Mr McCrindle said.

“It’s seen as a smart choice.”

Home size

The latest census data reveals that houses in WA are generally getting bigger, with the number of houses with four or more bedrooms overtaking three-bedroom houses as the most common type.

A 2011 CommSec report found that the average house in WA had a floor area of 245 square metres, slightly above the national average of 244sqm but still just fifth in the nation in terms of house sizes.

The latest figures represent a substantial jump from the average WA house size recorded at the beginning of the decade of just less than 220sqm.

In the report, CommSec economists Craig James and Savanth Sebastian said an increase in the number of people per household suggested that “more generations are probably choosing to stick together in the one dwelling - a trend that is a consequence of the increased size and quality of homes”.

However, the future may see property-sharing extending beyond the family unit.

The WA Planning Commission has flagged a potential easing of ancillary housing regulations, allowing home owners to lease out granny flats to the general public.

Under the current rules, only family members of those residing in the main home can occupy a granny flat.

WA leads the nation in terras of overall home sizes (including houses, villas, town-houses and apartments), which is a likely reflection of the less enthusiastic uptake of studio apartments in WA compared to other capital cities.

Yet residential developers expect there to be greater demand for medium and high-density dwellings in the future as the Gen Y market share gradually grows.

Realmark managing director John Percudani told a WA Business News forum in September that Gen Y buyers wanted the benefits of inner-city living without leaving the suburbs they grew up in.

“Once upon a time you had a one-bedroom apartment in the city ... Gen Y now wants that lifestyle where they live,” he said.


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