The Boomer housing bust: coming to Australia?
9 April 2013
This article first appeared on theconversation.edu.au
They're calling it the great "senior sell off" and it's scaring suburban America. Still recovering from the housing market crisis of 2007-09, America's latest concern is a looming glut of unsellable suburban homes as ageing baby boomers seek to downsize.
Respected demographer Arthur C. Nelson, Director of the Metropolitan Research Centre, University of Utah, has analysed data from the American Housing Survey, finding that over the past 30 years, 80% of new homes built in the US were detached single family dwellings. Much of this new construction was of the McMansion variety, exceeding 230 square metres in size, as the post war baby boomers (born in between 1946-1968) raised their families.
But as America's baby boomers start to turn 65, many are getting ready to sell their empty nest, often seeking apartments or townhouses in rapidly gentrifying inner city areas near services and public transport, and in popular sunbelt destinations. The worry is that the number of people in their peak buying years coming along behind them, are estimated to be around a quarter of that in previous generations. Like boomers, new generations of American buyers want smaller, more accessible homes, and they are also are more likely to rent. The mass market for McMansions has shrunk.
Professor Nelson expects America's next housing crash to hit when isolated seniors in auto dependent suburbs find ageing in place untenable. He predicts that between 1.5-2 million baby boomer homes will hit the market each year from 2020 on. Those who can't sell may simply abandon the family home.
Could this happen in Australia?
Changing housing careers
In many ways Australia's social trends have echoed those of the US. Our own baby boomers are advancing towards retirement, with the proportion of over 65s nearly trebling from 8.8% in 1971 to around 21% by 2026 and 28% by 2056.
Our life cycles and housing careers have changed too. For most of the 20th century, the expected pathway was for young adults to leave the family home, rent in the transition years before marriage, buy a starter home before upgrading to a second or third home along with children and growing household wealth. Outright home ownership underpinned financial security in retirement, while renting was viewed very much as a transitional tenure.
However, as in the US, social changes, along with affordability pressures, have seen adult children staying home longer, and purchasing homes later. Many low and moderate income earners are unable to achieve home ownership at all, particularly in the major cities. More seniors are reaching retirement with substantial mortgages, or in long-term rental having fallen out of home ownership following a personal crisis such as divorce.
These changes reflect fundamental demographic shifts, with lone person households and couples without children the fastest growing household types. Our cultural make-up is also becoming more diverse, with unpredictable implications for household formations and dwelling preferences in the future.
Like America, nearly 80% of Australia's housing is detached.
But where Australia differs from the US is in the scale and nature of suburbia. In the US, cheap loans and other government incentives encouraged home buyers to favour new homes in the suburbs, rather than renovate existing city dwellings. Combined with an exuberant program of highway development, liberal land release policies, and a vigorous construction industry, America's suburbs flourished in the post war decades. At the same time, disinvestment and a hollowing out of inner city areas combined with racial tensions to feed a process of "white flight" to the suburbs.
Stringent development codes for these new suburbs - large minimum lot sizes, prescriptive dwelling design specifications and zoning prohibitions against units and townhouses - created a virtual drawbridge - literally designing out diversity.
By contrast, Australian planning policies governing suburban release have always been linked to population forecasts and household trends, informed by the demographic and economic fundamentals that drive housing demand, preventing large scale over supply of dwelling lots, and avoiding "leap frog" development out of sequence with planned urban expansion.
Australian planners - though much maligned - also acted early to overcome local barriers to diverse housing types. For instance, NSW planning policy in the 1980s ensured that homes for seniors could be developed in residential areas, providing housing options for downsizers within existing neighbourhoods.
Preserving housing value
If Australia's middle and outer suburbs - made up of traditional detached suburban homes - haven't fared as well as the favoured inner ring in terms of real estate values over the past 30 years, we've certainly escaped the housing market failures that have blighted whole communities in many cities of the US.
Preserving this fundamental market stability is important, and will require careful urban policy in the future.
The real lesson from the US is that homogeneous, inflexible, and prolific housing development - the "build it and they'll buy it" model - represents long term risks, and can be difficult to turn around when demand changes.
For us that means we need to continue to carefully evaluate the locations and scale of new housing. Particular risks are likely in coastal retirement destinations beyond the capital cities, many of which have seen increased numbers of detached suburban developments as retirees cash out their city properties for a dream home near the sea. But without accessible health facilities and services, or diverse and sustainable employment growth, these housing markets will struggle once the sea changers require higher levels of care, and commence a process of return migration to the major population centres.
In contrast to America's surplus McMansions, another future weak spot in Australia may be poor quality high rise apartments in marginal outer locations. An ageing vertical suburbia may prove difficult to renew or adapt to unpredictable future shifts, once the current trend towards older, smaller household stabilises.
Our humble terrace has proved remarkably resilient and adaptable over more than a century, representing a highly desirable housing form as the backbone of the dense, walkable neighbourhoods home buyers increasingly demand. New generation terraces and innovative medium density housing offer longer term flexibility - and are generally compatible with existing suburban typologies.
As boomers age we can breathe new life into older suburbs by encouraging more conversion of existing stock - splitting homes in two. This can provide short term help for stay at home kids, and might also provide carer accommodation in future. Helping boomers adapt their homes to changing life cycles will mean less stock hitting the market at the one time, hence less downward pressure on prices.
NSW has led the way by permitting granny flats in residential zones, providing a potential income stream for retirees, while contributing to more diverse rental options in established suburbs.
Reinvesting in the suburbs
Professor Nelson urges Americans to renew and retrofit their ageing suburbs, rather than continuing 20th century urban sprawl, in part to protect existing home owners from further foreclosure crises.
While Australia's current preoccupation is a perceived national under-supply of new homes, the real challenge is to unlock existing housing opportunities within our own ageing middle and outer ring locations. That means sustained policy support to transition existing lower value areas - at risk of further market decline - to the opportunity sites for future growth.
Your housing equity may depend on it.