Feb 15, 2012

Growing Trend towards Smaller Houses and Renovations

Two new reports released in August 2011 have contributed to growing evidence that houses in Australia are getting smaller and homeowners are choosing renovation over buying new houses. This trend has implications for property investment. In this article, we take a closer look at the trend and what it may hold in store for investors.

Smaller Houses
The first noticeable trend is a reduction in the size of houses. Reports released by CommSec and IBISWorld both suggested that houses are growing smaller. The CommSec report drew on Australian Bureau of Statistics (ABS) figures to reveal the following about Australian houses:

· Smaller homes overall. While Australians continued to build the biggest homes in the world by area (at 10 and nine per cent larger than houses in the US and New Zealand respectively), data for the nine months to March 2011 found that the average floor area of new homes (including apartments) was 214.1 square metres. For free standing houses the figure was 243.6 square metres.
· Peaking home sizes. Home size has reached a peak in Australia. In 2008/09 the average new house was 248 square metres. In 2009/10 this figure was 239 square metres.
· More smaller apartments being built. While we still build the largest homes of any country in the world, Australians are building more smaller apartments. In the nine month period to March 2011, the area of new apartments averaged 133.7 square metres, which was the smallest result for the past decade. For this reason, a smaller apartment will make a better
investment property for investors.
· Apartment sizes peaked in 2004/05. The peak for apartment sizes was probably reached in 2004/05, when the average area was 143.7 square metres. In the 2009/10 period, the average apartment size was 143.4 square metres compared with 133.7 square metres in the nine months to March 2011. For the March quarter, the average was even lower at 128.9 square metres.
· The largest houses in the country. New South Wales built the largest houses on average.
· The largest apartments in the country. The Northern Territory built the largest apartments.
· The smallest houses in the country. South Australia built the smallest houses in Australia.

The IBISWorld report noted that Generation Y have shown a preference for smaller houses. Similarly, baby boomers nearing retirement are choosing to downsize, preferring smaller, well-situated properties close to transport, cafes, amenities, entertainment venues, and not too far from work hubs.

More Renovations
The IBISWorld report showed that the do-it-yourself renovation sector is expected to grow by 15 per cent over the next five years. The report suggests that more people are choosing to renovate over changing homes, though part of the trend is attributable to cyclical factors.

The report suggests that Australia could even see an increase in the number of families where different generations live in the same home, with seniors being cared for at home and renovations being used to make homes for habitable for more people.

People may move less often, preferring to upgrade their properties rather than make a complete change. This may lead to increased demand for consumer items such as hardware retail products, professional renovation advisers, and garden suppliers.
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