Bigger properties occupied by smaller households in major housing mismatch, Cotality finds

In a reminder of how broken housing affordability and access is, new analysis highlights a major mismatch between the size of Australian homes and the number of people living in them.

While the vast bulk of Australian housing is built for larger families, property research firm Cotality has found more than 60 per cent of households are made up of just one or two people.

It reveals a misalignment between "who lives in our homes and the kinds of homes we're building", Cotality's head of Australian research Eliza Owen says in the report.

"Of the lone-person households in Australia, the data suggests around 40 per cent are aged 65 and over," Ms Owen said.

"The highest share of households is two people, but the highest share of housing has three bedrooms.

"While there's nothing wrong with more bedrooms than people in a dwelling, there could be some inefficiencies in the way housing is being allocated," Ms Owen said.

"After all, a 'traditional' family of four may have more need for a three-bedroom dwelling than a household of two people."

The report cited data from the 2021 census, which showed there were more two-person households in three-bedroom dwellings (about 1.3 million) than three or four-person households (about 1.1 million).

Transaction costs a barrier to 'right-sizing'

Ms Owen has suggested a way to fix the "efficiency question", which she knows is not politically appealing: send a price signal.

She said that logic often led to calls for tax reform, including abolishing stamp duty — to make it cheaper to move between housing — and replacing it with a broad-based land tax.

"These options are both politically difficult as it would involve moving from a tax that applies to a small amount of voters each year who purchase property, to one that will tax two-thirds of voters [as property owners]," she noted.

Independent housing researcher Cameron Kusher, speaking to The Business in July, argued that high transaction costs, namely stamp duty, discouraged moving to a "better-sized property" and could lead to people purchasing larger homes than they needed to begin with.

"People just feel like if I can get a better and bigger home sooner, that's a better outcome," he said.

"If we look at what is being built, it's usually very large houses, four or five bedrooms, taking up most of the land on these new housing sites," Mr Kusher said.

"I think a lot of people are building bigger homes, thinking 'I'll spend a little bit more up-front and my family will grow into this home'.

"It might just be a couple of grandkids, or they're planning to have a couple of kids."

He noted the effects of rapidly increasing property prices, which could leave people priced out of re-entering the market, and the fact that larger properties could be more likely to appreciate in value at a faster pace.

Cotality's Ms Owen said other policy options to encourage people to move into appropriately sized homes could include reforming pension asset tests to include the value of the family home.

"Strides are already being taken on the supply side to establish well-located apartments in our larger cities that can accommodate smaller households.

"But shifting demand through tax reform could help the take-up of these new homes."

Could smaller homes speed up supply?

The government has accepted it is not on track to meet the target to build 1.2 million homes in five years, but Treasurer Jim Chalmers has stood by the ambition, despite Treasury advice it would not be met.

In another recent note, Ms Owen questioned the focus of state and federal governments on speeding up building approvals to boost housing supply, warning that the construction industry simply could not keep pace.

"With completion times already above average and construction costs elevated, it seems an odd time to be incentivising more dwelling approvals and commencements," she said.

Cameron Kusher argued past experience could be a guide on how to approach today's housing problems and ease the construction crunch.

"Maybe we need to go back to how things were 30 or 40 years ago, where you have smaller homes and you make them easy to renovate," he told The Business.

"Over time, people can actually add bedrooms, bathrooms, car parks, verandahs and all these sorts of things to add value to the home.