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Should investors follow the small living trend?

January 15, 2018

Australia has a reputation for big. A big land; big monuments and, not least, big houses. We’re known for our McMansions, supersized houses that stretch as far as the eye can see on our seemingly ever-expanding city fringes. For most of the past 20 years we’ve had the biggest houses in the world and they kept getting bigger; with new house builds averaging over 245 square metres by 2012, according to ABS data, up from 162m2 in 1984.

But a counter-trend has emerged, initially with apartments since 2009 and then with freestanding houses since 2013. The average size of residential properties that aren’t detached houses has fallen from 140m2 in 2004 to around 131m2 in 2016 (according to analysis by ABS and CommSec) and even detached house sizes have pulled back to 231m2 in 2016. With the share of new homes that aren’t freestanding houses now at a record 40%, owners of a new home – at least – are learning to live smaller. 

Unaffordability, of course, explains most of the trend away from ‘big’ living. Rising land values and building costs pushed developers to trim property sizes to keep prices within the budget of their target market.

But developers have also been a victim of their success.  With every city fringe broad acreage zone carved up, marked out, paved over, built upon and sold off, they’ve had to move progressively away from the heart of the cities. The reality now is that many prospective buyers have baulked at the longer commutes and sparser infrastructure out yonder and opted for something smaller closer in.

Changing tastes and technology have likely also played a part. With the rise of the smart phone and other clever e-devices over the past decade our attention has been diverted away from the dwellings around us to the external world we can see in the palm of our hands. It’s a world where smaller is better.

Living small has become less of a second best compromise and more of a badge of honour, especially when an owner can show off how their ingenious space-saving and light-siphoning layout has allowed them to buy in an enviable and otherwise beyond-their-dream blue-chip suburb.

Small living is a movement that’s getting bigger. We recently reviewed Small House Living Australia. Its author, Catherine Foster, showcases more than 20 houses that exemplify what can be achieved.

In many ways, small living has always been here.  Single-fronted 2-bedroom cottages in inner Sydney or Melbourne with only 120m2 of living space aren’t uncommon; and older-styled one bedroom apartments are often between 40 and 50m2. These aren’t marginal properties; they are sought after by homebuyers and investors and command premium prices.

Banks are possibly the one key group yet to fully embrace small living. Many institutions have an arbitrary rule not to lend to properties that are smaller than 40m2 or insist on lower than usual loan-to-value ratio. I understand they do this to avoid high risk ‘shoebox’ student accommodation, but it also causes issues for those wanting to buy some art deco properties, which are often small.

With an ageing population and more people living alone, I think living small is here to stay. Period, well-located, one-bedroom apartments are perhaps the most accessible way for smart, non-claustrophobic investors to capitalise on this trend.

Richard Wakelin

To show our love for small houses, we're giving away one copy of Catherine Foster's Small House Living Australia on Valentine's Day. Please just email kalys@wakelin.com.au to enter. Competition drawn 14 February, 2018.