From Perth to Sydney: the quest to fit more people into same area

Mass migration, building delays, urban sprawl and record-high house and rent prices.

It’s a scenario that demands a new and urgent response that somehow manages to fit more people into the country’s already populated centres.

Research from the Institute of Public Affairs reveals that Australia will face a net supply shortfall of over 250,000 homes by 2028.

An inability to pay rent is cited as the reason more than half of homeless people are in their current plight.

Record low national rental vacancy rates of 0.9 per cent have created a maelstrom of challenging housing conditions that require a continental shift in how Australia looks at shelter.

In Western Australia, for example, if every spare bedroom across the state was added together, it would amount to 1.45 million bedrooms. Even if every dwelling with at least one unused bedroom were to use one of those rooms for another purpose, that leaves 675,000 spare bedrooms as vacant capacity.

That finding from a study released this week by the Bankwest Curtin Economics Centre is reflective of a problem besetting most major cities in Australia, as well as regional centres unable to house their workforce.

Across the country, there is no longer an efficient use of space, particularly given the nation’s projected population growth. And even those houses that are being built are insufficient to address the shortage.

At current housing completion rates, Australia will only manage to build around 830,000 homes over the next five years, leaving a whopping deficit of 370,000.

Reducing home sizes could be game changer

Australia’s shrinking land lot sizes have not helped housing affordability, and if the nation is collectively serious about addressing affordability, we need to build smaller homes.

That’s the view of Peter Packer, Director, Dorado Property, who said that in the past couple of decades in Australia, despite average lot size for new homes in all states shrinking, property values have outpaced household incomes, contributing to the current housing affordability crisis.

“The predominant driver of soaring property prices has been the cost of land running well ahead of inflation, with the only exception being WA.

“The average Australian new home lot size has fallen markedly over the past decade in every capital city throughout this period of price growth, making the land price increases even more pronounced on a per sqm basis,” Mr Packer said.

Lot size reduction has been most pronounced in Victoria and Queensland over the past 14 years, where in Queensland, lot sizes went from a median of 622 square meters to about 421 square metres and in Victoria from 516 to 353 square metres in the same period, both recording a 32 per cent drop over that time.

The median land lot price in many states has more than doubled since 2009. This has been most pronounced in the ACT where a median block of land cost $222,000 in 2009 and has jumped up to $679,000 in 2023.

NSW is the most expensive per square meter of land, ending 2023 at $1,504/sqm, which is more than three times the price from 14 years ago. Victoria and the ACT also recorded a tripling in per square meter lot prices over that period. On the other hand, South Australia recorded the lowest rate of $608/sqm in 2023, with WA not far off with $654/sqm.

Home owners, however, are refusing to compromise on house size.

“Concurrent with the reduction in lot sizes, home buyers have displayed a reluctance to reduce their house floor areas, with new house sizes remaining largely steady over the past 14 years, while the price of a new house has increase at or above inflation in all states other than WA,” Mr Packer said.

“With the recent cost increase pressures in construction prices, new home buyers may be forced to adjust the size of their new homes downward otherwise the affordability crisis we face now will only continue, and perhaps even worsen.”

Solving the housing crisis

While it is easy to dismiss the current housing crisis as beyond resolution, there are measures that could alleviate the worst case scenarios.

Leigh Holford, Economics Principal at global developer and engineering firm Hatch, said rising affordability concerns, an increase in single-person households, the move towards more sustainable housing, and soaring vacancy rates were signs of a much needed shift in the types of houses required.

“Given rent values rose annually by up to almost 100 per cent over the 2022 and 2023 financial years in most suburbs within our major capitals, we predict the crisis to worsen unless unconventional approaches are adopted,” Ms Holford said.

She urged developers to consider proven global housing typologies such as accessory dwelling units and build-to-rent (BTR) properties, and that governments consider financial mechanisms such as debt guarantees for community housing and shared equity programs.

“Such solutions will provide greater support to address growing populations, demographic shifts, affordability constraints and housing shortages in a way new developments on their own never could.”

In My Back Yard (IMBYS) or Accessory Dwelling Units (ADUs) are secondary, fully self-contained dwellings, typically known as granny flats or, when on garages, ‘Fonzie flats’ that are on the lot of an existing house.

“While there are regulations governing their construction, there has been growing interest in promoting IMBY development to increase housing affordability and address urban sprawl and sustainable development.

“They are an effective solution to boosting affordable rental housing, particularly in parts of the country where critical community workers are needed.”  

Ms Holford pointed out that ADUs have been successful in California, for instance, which passed a law in 2017 to force cities to relax ADU construction restrictions. In 2022, homeowners applied for over 30,000 ADU permits – almost one-fifth of all permits. ADUs are also taking off in Chicago, Miami, parts of Montana and in Seattle, where there was a 25 per cent increase in ADU permits in 2022.

“The uptake here in Australia is still not known in response to recent changes across Australia but Hatch believes more needs to be done to relax restrictions for parking and site setbacks to truly unleash their potential.”

Build-to-rent developments are built solely for renting and are typically owned by one entity or group that aims to create a cohesive rental community with amenities and services tailored to tenants’ needs. 

Ms Holford said BTR is another key ‘ownership’ typology that is key to curbing the crisis, with the program already being rolled out to varying levels of success across the UK and the US. It is yet to be truly embraced in Australia, with the country’s current BTR sector comprises about 0.2 per cent of the total value of the residential housing sector (or 23,000 apartments).

Designing for urban growth

The NSW government recently announced it would increase buildings - especially dwellings - around 31 of Sydney’s metro rail stations. It is estimated they will build 140,000 homes within 400 metres of these hubs.

Building without consideration of the need for greater infill and more sustainable properties is no longer an option.

James Alexander-Hatziplis, CEO of architectural firm Place Studio, said that with rising costs adding to the construction sector’s woes and Sydney’s affordability constraints, it is important to incorporate smart design into new buildings.

“We welcome the New South Wales Government’s new pattern book approach to create repeatable housing for two storey terrace house and mid-ranged apartments, with the government set to fast-track developments using these designs.

“Smart, effective, efficient and repeatable design starts with the better use of spaces and can help lower costs for new buildings as well as enabling builders to lower construction times.

“If the construction sector can save money on the building costs, without compromising on the quality of the build, they will be able to afford more property developments,” he says.

He added that smart design can help offset the potential issues of living next to a train station.

“By providing good repeatable design and adding the right noise mitigation strategies, developers can better utilise spaces around transportation hubs that will appeal to a wide range of potential residents,” he said.

“It is key to have smartly designed, effective, efficient and liveable premises to attract a range of residents, lest these hubs become substandard housing neighbourhoods.”

In Western Australia, housing stock is heavily focused on space-consuming detached houses.

The 2021 Census recorded around 884,600 separate houses, comprising 77.4 per cent of the state’s total dwelling stock. Semi-detached and terraced houses account for 13.4 per cent of all dwellings. The concentration of separate houses in WA is 7.4 percentage points higher than for the rest of Australia.

The increase in the number of flats and apartments in blocks of three or more storeys has come from an extremely low base.

The Curtin University economics centre concluded that consideration needed to be given to a more diversified mix of dwellings by type in the state.

“To the extent that the current mix of dwellings in the state reflects traditional housing preferences among the WA community, there will need to be some shifts in demand towards a more diverse set of housing options – including supplier induced demand for new housing products at a broader range of price points from the construction sector, potentially with support from government.”

Given Perth’s north to south sprawl is the longest in the world and new developments continue to sprout further away from the CBD by the year, convincing property buyers in the west to give up their large, detached homes could be a tough sell.