Housing Wants vs Housing Needs

Recently 4 Corners ran a detailed report on housing focusing largely on how unaffordable it is.  The program focused very much on the fact that housing was expensive but nowhere in the report did they actually delve into the reasons why housing is so expensive.  There were plenty of statements about how people were borrowing more, that investors are driving out first home buyers and that it was a Ponzi scheme etc, but it was very light on actual supporting data.

While I don’t think the report was balanced and most of the statements lacked any supporting evidence, it did highlight the challenges of housing affordability in this country which is very much an ongoing problem in key areas.  The report got me thinking about the difference between the housing that Australians need and the housing they actually want or desire.  More specifically that housing or shelter rather, is a need but very few of us actually live in the housing we need.  In fact most Australians want bigger houses, in better locations, with more bedrooms and bathrooms and car spaces and ultimately this leads to higher housing costs whether that be for purchase or for rent

If I think about my own situation, the three properties I have purchased over my lifetime, all three of them were well in excess of what I actually needed.

My first home was a two bedroom unit when I was 23 years of age and single.  I had a friend move in to help pay the rent but ultimately, I only needed a 1 bedroom property for myself yet I decided to buy a larger and ultimately more expensive two bedroom property.

After five years I decided I didn’t want to live in an inner city unit anymore and wanted a house.  I was still single and was at this time not wanting to share with a renter, I bought a three bedroom house on a 600 sqm block of land.  I went from having one bedroom more than I needed to having two extra bedrooms.

Finally, I met my wife and we moved out of this house to a larger house but there was and is still only two of us, yet we decided to buy a 5 bedroom, 3 bathroom house on a slightly smaller 405 sqm block.  Now my wife is from overseas and the theory was that we would have plenty of space for when friends and relatives visit as well as in the future if/when we decide we would like to start a family.  The reality has been that the only time friends and relatives have visited is when we were getting married.  So now we have a married couple, using one bedroom and one bathroom occupying a five bedroom home.

The point here is that whilst I have always needed a home I have consistently wanted (and ultimately purchased) homes which are much bigger than what I actually need.  Each time a larger home was purchased it cost more and ultimately resulted in a larger mortgage.  I know that many of my family and friends have also owned or rented properties that have more space than what they actually require.

Last year the Australian Bureau of Statistics (ABS) released its Housing and Occupancy Costs report for the 2013-14 financial year.  The above table highlights household utilisation by household type and shows that the vast majority of households have more bedrooms than they require.  For owner occupiers, 85.6% of households have at least 1 bedroom more than required while for renters 60.9% of households have more bedrooms than required. While plenty of people had more bedrooms than they required, relatively few had less.  Only 12.6% of owner occupiers had enough bedrooms in their home compared to around one third of renters.

Having extra bedrooms is a nice luxury but ultimately having larger homes means a higher cost to either purchase or rent these properties.  Unfortunately, much of the new development is either small one or two bedroom units in the inner city or larger three and four bedroom houses on the outskirts of the city in greenfield areas.  Ultimately this ends up driving families to the outer areas and singles, couples and renters to the inner city areas.

Because of the high cost of land and significant charges on new development, unfortunately most of these new properties are not being delivered to the market at particularly affordable price points.  As housing affordability worsens, people need to more carefully consider the difference between the housing that they need and the housing that they want and ultimately the difference in cost between the two.

If people are serious about accessing more affordable homes they need to consider how much space they actually need. In order to deliver more affordable homes Governments need to look at ways to reduce the cost of developing new homes.  Meanwhile developers need to look at ways to build more affordable housing stock with fewer bedrooms yet still enough space for occupants to live and store all of their belongings.  Housing affordability is a complex issue however, if you want a larger home with more bedrooms than are required it is going to cost you.

Article written by Cameron Kusher, originally published by RP Data.