Melbourne Stand Alone Homes, 2006 - 2016

In Melbourne, building approvals for stand-alone homes remained above the 2 year average in September 2013. In a city where 68.8% of housing stock is stand-alone, this pipeline of detached housing has been picking up since early 2013 despite, being driven by a combination of business and consumer sentiment, changes in land-use planning and policy, but also demography - specifically the changing life cycle stages of demographic segments.

Demography is not particularly understood in mainstream society with the market research term 'demographics' acting as a surrogate to explain all things people. Despite a wealth of anecdotal and empirical information in circulation about demographics and residential property, the patterns and geographical compositions of what define and shape our communities are not really understood or commonly available.

Slicing the population into 7 demographic groups,our research findings reveal the changing residential composition of how people choose to live. Looking specifically at stand-alone homes between September 2006 and September 2013, 222,000 additional people in Melbourne live in this style of residence. Strong growth was common to the 55-64 and 65+ segments (see chart 1), but given the life cycle stage of these segments, their growth can be largely attributed to 'ageing in place'.

Chart 1: Demographic composition of persons living in stand-alone homes, 2006 - 2016

Source: Paul M. Ross, 2013

In the 7 years to September 2013, persons aged 35-44 (Gen X) only grew 8.2%. Already established in the housing market, many Gen X'ersare owner occupiers in some capacity, explaining their lower rate of change in proportional terms (see chart 1). Gen Y (aged 25-34) meanwhile grew strongly at 13.9% over the historical period. Given how stock composition has changed in Melbourne this past decade, the growth associated with Gen Y can, in part, be attributed to the widespread emergence of affordable new stand-alone homes on the city's outer fringe. The trends associated with these 2 segments however are expected to change over the forecast period: Gen X'ers will upgrade from apartment living, while recent Gen Y purchasers are likely to stay put in the new outer ring homes.

Persons aged 45-54, which account for a large proportion of the baby boomer segment,present a similar trend to persons aged 35-44 (Gen X), with strong growth occurring in the historical and forecast series (see chart 1). The growing proportion of Gen X entering this market explains its anticipated pick up; a forecast fuelled by the completion of Melbourne's pipeline of stand-alone housing products.

The baby boomer segment, persons aged 45-54 and 55-64, grew strongly over the historical period. Clustered across inner and middle ring communities, the 55-64 segment grew by 15% in the 7 years to September 2013 (see chart 1). This segment's slowdown across the forecast period can be explained by ageing in place, and their transition into the 65+ age group.

The compositional and geographical implications of this scenario moving forward presents a stand-alone housing pattern of ageing communities across the inner and middle rings, and younger communities in the outer ring and peri-urban localities. On the basis of these challenges, Gen X is choosing a different path, with a growing number choosing to live in multi-dwelling residences such as units and apartments across the inner and middle ring of the city. Following the events, and aftershocks of the GFC, a downsizing baby boomer market has not been the spectacle anticipated - especially by Gen X! Staying put, remaining in employment, and even supporting their children, and their children's children, are baby boomer behaviours keeping many aspiring Gen X'ers out of particular communities across Melbourne's inner and middle ring.

These gatekeeper effects however are expected thaw over the forecast period. In the 3 years to September 2016, 13.5% growth is anticipated across the 35-44 segment, but it is the 45-54 segment however where more significant growth is expected to take place (chart 1). With Gen X representing a quarter of the 45-54 segment by 2016, the 19% growth forecast can in part be attributed to them demonstrating that older Gen X'ers are beginning to have some compositional influence on the stand-alone housing market of Melbourne (chart 1).Review of chart 2 supports this trend, with lower growth anticipated for 55-64 year olds and the 65+ segment. Segments 35-44 and 45-54 meanwhile present an expected improvement in the 3 years to September 2016.

Chart 2: Annualised growth rates by demographic segments living in stand-alone homes, 2006 - 2016

Source: Paul M. Ross, 2013

The anecdotal expectation of thousands of detached stand-alone homes changing hands from the baby boomers to Gen X and Gen Y over the next decade seems at this juncture far-fetched. However, there is evidence to suggest that the baby boom generation is downsizing with$500 billion worth of detached residential assets anticipated to change hands across Australia,(50,000 - 100,000 homes, assuming an average property value between $500,000 and $1,000,000) over the next decade.

In the absence of detailed modelling and analysis, it is difficult to understand not only their downsizing patterns and intentions, but the changing patterns associated with tenure such as owned outright, under mortgage, and rented, and their changing compositional relationship with all age segments and where these patterns are taking place.

Our next blog article will investigate this reality of this $500 billion, its patterns, and distributions over time and space. Looking specifically at stand-alone housing in Melbourne, the analysis will chronicle the baby boomers impact on stand-alone housing tenure patterns and what contribution Melbourne's boomers have made historically and are likely to make over the next decade.

Date posted: 2014-01-14 | posted by: paulr

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