22 August 2011 – Two reports today confirmed what the smart money has been thinking for a while – houses are getting smaller, especially if the rise in apartments living are taken into consideration, and home owners are renovating rather than buying new.

The two reports are one by CommSec which used Bureau of Statistic figures to show the house size trends and another from IBISWorld which showed that the do-it-yourself and renovation sector will grow by 15 per cent in the next five years at least in response to falling consumer sentiment and partly as a cyclical phenomenon.

Another recent announcement worthy of note was in the Stockland financial reports this month, which showed that th average lot size the company produced has shrunk from 588 square metres to 48 sq m from between 2008 to 2011. The price point and house size had also reduced accordingly, Stockland said.

According to IBISWorld the DIY and home improvement sectors including hardware retailers, professional help, garden suppliers and plant nurseries are “flourishing” with growth tipped to be 2 per cent over 2011-2012 or $22.2 billion for the year and rising to close to 5 per cent over five years.

The two reports –  and the Stockland trend ­– dovetail  into an outlook that might be more sustainable if it means fewer resources are consumed and we are opting for a simpler life.

According to author of the CommSec report Craig James, the future might have reduced demand for building materials and increased demand for renovations.

“People may move house less frequently, seeking instead to renovate existing properties, especially those that are well situated to amenities like shops and transport.”

Generation Y, he says, has already indicated a preference for smaller homes, well situated to work, transport, cafes and entertainment venues.

“Baby boomers nearing retirement may also focus on downsizing, preferring locations with proximity to transport and shopping strips or centres.”

There may even be more blending of family generations which can be accommodated through renovations or alterations to the home.

“Other households in the Gen X and Baby Boomer categories may prefer to stay in existing homes but seek to renovate to allow shared access to the extended family. ”

He points to the recent Productivity Commission report into aged care which highlighted the preference of seniors to be cared for in their family home. This may l”ead governments to provide incentives for renovation or expansion of homes rather than building new dwellings.”

IBISWorld general manager (Australia) Ms Karen Dobie said the trend in home improvements was linked to housing prices and housing shortages.

“Many homeowners have been dissuaded from entering the property market due to the increasing cost of buying a home and the associated costs of moving,” Ms Dobie said.

“Consequently, these consumers have turned to DIY and renovating to add value to their homes, save and squeeze their budgets further.”

Other bid drivers include declining consumer confidence, the DIY cyclical trend and the popularity of home renovation programs such as The Block.

However, the past five years have seen consumer confidence fall by 1 per cent a year, and the current cautious environment has seen Aussies opt to reduce debt and focus on saving rather than spending, Ms Dobie said.

“Since the economic downturn Australians have increased their savings rate to about 10 per cent – the highest rate since 1986, and credit card advances are currently at their lowest level since 2004.”

According to CommSec the in 2008-09, the average new house hit a record high of 248 square metres.

It eased to 239 sq m in 2009-10 before edging back up to 243.6 sq m in the nine months to March 2011. “In the March quarter alone, the average house completed was 247.4 square metres,” the CommSec Economic Insights report said.

“In terms of apartments, the peak was probably back in 2004/05 at 143.7 sq m.

“In 2009/10 the average new apartment was 143.4 square metres. The size of a newly-built apartment fell sharply to 133.7 square metres in the nine months to March 2011 – a decade low. In the March quarter alone apartment size was even smaller at 128.9 square metres.”

However it seems Australian household size is growing.  The number of persons per dwelling rose from around 2.53 in 2003 and 2004 to around 2.66 persons currently.

Other highlights of the report included:

  • average home size in the US has been shrinking for the past three years. New homes in Australia are around 10 per cent bigger than in the United States and 9 per cent bigger than in New Zealand.
  • Australia has constructed a larger number of smaller apartments over the past two years, resulting in a reduction of the average home size. In the nine months to March the average new apartment was 133.7 sq m, the smallest result in a decade.
  • NSW continues to build the largest houses in the nation while the Northern Territory builds the largest apartments. South Australia builds the smallest houses in the nation.
  • average floor area of new Australian homes (houses and apartments) stands at just over 214 sq m, up 5 per cent over the past decade. By contrast, latest figures show that US new homes are similar in size to a decade ago having contracted in size over the past few years. In calendar 2010, the average size of new homes completed in the US stood at 195.2 sq m, with the average new house estimated at 222.2 sq m
  • According to figures from the UK Commission for Architecture and the Built Environment, Denmark has the biggest homes (houses and flats) in Europe with an average floor area of 137 sq m, followed by Greece (126 sq m ), and the Netherlands (115.5 sq m). Homes in the UK are the smallest in Europe at 76 sq m. Website Demographia.com reports that the average new home in Japan is 132 sq m with the average house at 187 sq m. And a free-standing new home built in Canada is around 177 sq m.
  • The biggest homes in Australia (houses and other dwellings) can be found in Western Australia (229.4 sq m), followed by Northern Territory (228.7 sq m), Victoria (219.2 sq m), NSW (218.6 sq m), Queensland (214.0 sq m), South Australia (177.5 sq m), Tasmania (174.3 sq m), and the ACT (164.6 sq m).
  • NSW still has the biggest houses in Australia. The size of the average new house built in NSW in the nine months to March 2011 was 269.7 sq m, followed by Northern Territory (263.5 sq m), Queensland (250.6 sq m), Victoria (246.9 sq m), Western Australia (244.9 sq m), ACT (212.8 sq m), Tasmania (188.7 sq m) and South Australia (185.4 sq m).
  • Children are staying home longer with their parents – no doubt the cost of homes and rising rents being key influences, the report said. “With the ageing population, more generations are probably choosing to stick together in the one dwelling – a trend that is a consequence of the increased size and quality of homes. New migrants may also being choosing to stay with family or friends. And given the increased preference to attend universities and colleges, Generation Y is more cash-poor, forced to share accommodation and save longer to buy a home.”
  • In 1985 the average home in Australia was around 150 sq m.
  • For the past five years the size of the average home has gone sideways. “Could this indicate that home size has peaked or reflect part of the “new conservatism” of Australian consumers?” the report asks.  “It seems a combination of the two. House size couldn’t keep rising, but consumers in Australia have also decided to live more simply than in the past. It is also a case of demographic change. Gen Y places less importance in home ownership than past generations, preferring to maximise life experiences. And the ageing population also points to less demand for bigger homes, with greater demand for smaller apartments, close to amenities.
  • There are varying trends:  Northern Territorians have been building bigger houses and apartments in recent years. West Australians also have been building bigger houses, no doubt reflecting higher incomes associated with the mining boom. In South Australia, the ACT and Tasmania, new houses are smaller than a decade ago while apartments are similar in size or smaller over the same period.