Why is Australian property so unaffordable?
Ian Ugarte

Why is Australian property so unaffordable?

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1 minute read

Why is Australian property so unaffordable?

May 08, 2018

Sadly, Australia is one of the most unaffordable housing markets in the world. According to the 9th Annual Demographia International Housing Affordability Survey, Port Macquarie, Sydney, the Sunshine Coast, Gold Coast, Coffs Harbour, Mandurah and Melbourne are all part of the top 20 least affordable areas to live in worldwide.

Australia’s capital cities ALL feature in the top 58 least unaffordable cities in the world. Today if the survey was conducted, Hobart would jump to or overtake Sydney as the most unaffordable market in the country. That would be number two in the world!

Why? There are a number of reasons. House sizes, house demographics, the short stay rental market, negative gearing and quite simply the law of demand and supply!

Australia started its evolution in housing with figures in 1885 showing average house sizes of 35m2 with 5.5 people living in each house. Fast forward to 1960 and the Australian house size has grown to a sustainable 85m2 with 3.8 people living in the standard two-bedroom one-bathroom house.

Then our mass builders started their revolution — or should I say mutation — of what we saw as the Great Aussie home. They added bedrooms, bathrooms, dual living areas, formal dining rooms, patios, double garages and we ended up with some of the largest houses in the world. Four-bedroom, two-bathroom homes averaging 246m2 with 2.5 people in each house.

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Tonight, as each of us lay down in our bed there are 12 million empty bedrooms in Australia and if I took my Aussie builders to Hong Kong, we could fit 22.6 Hong Kong houses into one Australian house.

The housing stock is too big for what we require if each family only requires two bedrooms. Up to 80 per cent of people looking for rentals are single or couples. Yet up to 80 per cent of our stock are three, four and five bedrooms homes. Converting those homes into micro apartments using easily accessed policies around the country is the key to fixing the house size problem.

In Hobart we have had 7 per cent plus rental price increases in the last two quarters. There are families who have their furniture in storage and sleeping in tents on the showground arena. Not because they cannot afford but because there is no family stock available. There are so many couples and singles taking up the family housing stock that the right demographic does not have access to the right housing.

Add to this the huge implications that the short stay rental market has created for Australia and we have seen another issue raised with long term rentals being removed from the market for better returns. Every investor who has ever negative geared has probably worked out at some point that they have less money than before they owned the property. The short stay market gives an investor the opportunity to positive gear and then make their lives financially easier.

But it comes at a management cost as the extra cash comes at the price of intense cleaning, welcoming guests, managing reviews and ensuring that you reach the super host status that can be taken from you with one bad review. Is it really worth it?

With the supply of smaller self-contained homes not available, we require that any new stock or existing stock is retrofitted to ensure we supply more for singles and couples. That will mean, family housing will then be vacated, allowing families to live in them and the supply demand will stabilise.

Every four-bedroom house converted to micro apartments will free up three family houses as couples and singles take up rentals that are one-half to one-third cheaper to the next available rental property.

With the micro apartments, you end up with doubling your income. Those in the short stay market will see that the returns are good enough to no longer need having their property on the “hard-to-manage, short-stay market”, resulting in increased supply and the demand being met!

Ultimately the investor gets a better return as they fix the housing market. It’s a “win-win” all round.

About the author

Ian Ugarte

Ian Ugarte

Ian Ugarte is the founder of the Australian Housing Initiative and co-founder of Small is the New Big. He is a property expert, educator, author and change maker.

He is and passionate about creating co-operative partnerships between Social Agencies, Government and Private Investors to bring back the genuine connection of community through the provision of elegant housing diversification.

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