Comparison of preferred housing, existing stock and current supply (Grattan Institute)

The Herald-Sun reported last week that “the great Australian dream of owning a home on a quarter-acre block might no longer exist. Instead, Australians want more town houses and apartments in the more desirable areas”.

The important words are the last five – “in the more desirable areas”. Australians still love their big, detached houses but they also value location. The baby boomers could have a detached house on the suburban fringe and still have reasonable access to the rest of the city, but those days are vanishing. Now, people who want to live in an accessible location increasingly have to forgo space and accept a smaller dwelling, often a town house or apartment. As illustrated here, those leading this trend are young, small households without dependents – they’re less sensitive to space than families and place a higher value on density.

The Herald-Sun’s interest in this issue was sparked by a new study by the Grattan Institute, The Housing We’d Choose, on the housing preferences of residents of Sydney and Melbourne. It shows that more than half of households in these cities would rather live in a multi-unit dwelling in the right location than in a detached house in the wrong location.

This presents a serious problem for policy – the existing stock of housing no longer matches up with resident’s changing preferences. The Institute finds that a whopping 59% of Sydneysiders and 52% of Melburnians would prefer some form of multi-unit living. Yet this type of dwelling makes up only 48% and 28% respectively of the existing housing stock in the two cities (see first exhibit). Moreover, in Melbourne, developers are continuing to under-provide medium and higher density housing, leaving households with little choice other than to live in sub-optimal locations, albeit in a detached house.

I must admit I was disappointed with the Grattan Institute’s first report in its Cities series, The Cities We Need, so I wasn’t expecting a lot from The Housing We’d Choose. It’s not that there was anything technically wrong with the first report, it’s just that it seemed a curiously pointless exercise – as I noted here, it’s so high-level it didn’t take the debate on urban issues anywhere or advance the cause of better policy.

This time however the Institute has applied all those brains and resources to a meaty and relevant issue and, moreover, gone about it in a logical and determined way. While The Housing We’d Choose has some flaws, it shows up the limitations of the research being churned out by some of our local universities and lobby groups. This is the kind of study they should be examining closely.

The headline finding – that people are prepared to trade off dwelling size and type for greater accessibility – may seem self-evident, but the Institute has attempted the important task of measuring this preference. The researchers sought to simulate real life. They gave a sample of households in the two cities a range of real location, housing type and dwelling size options and asked them to make trade-offs in order to arrive at their preferred combination. The smart thing is the trade-off was constrained by real-life prices and the real incomes of respondents.

The outcome of the simulation, using Melbourne as an example, is shown in the second exhibit. There are four housing types – detached, town houses (curiously, the report calls these semi-detached), 3 storey apartments, high rise apartments – and four geographic zones, which are essentially concentric rings. The exhibit shows clearly the shortfall in multi-unit dwellings – 52% of the Melbourne sample say they want to live in this form of housing but it comprises only 28% of the existing stock (note that rounding means the totals might differ a little from the cells).

That’s clear enough, but this exhibit also reveals some interesting points about location that aren’t discussed in the report.

Preferred dwelling type compared against existing stock, Melbourne

First, there is more total housing stock in Zone 1 than people who say they want to live there. This is an important finding because Zone 1 is quite extensive – as well as the inner city, it includes some middle ring suburbs like Brighton, Malvern, Box Hill and Waverley West. Conversely, more people want to live in the outer reaches of Melbourne than there is dwelling stock to accommodate them.

Second, while there are differences in type, the overall stock of multi-unit dwellings in the central area of Melbourne (Zone 1) pretty well matches people’s preferences. Most of the aggregate shortfall is in the middle to outer suburbs – Zones 2, 3 and 4.

There are multiple conjectures that might explain these findings but there isn’t enough information in the report to be very confident about any of them. To my mind, these numbers suggest a possibility that needs to be investigated further: do a significant number of households favour multi-unit housing for reasons of affordability rather than accessibility?

Another explanation could be that the methodology is being asked to do too much. This is an area where, for all its strengths elsewhere, the study seems a bit weak. I’d certainly need more information than is provided to persuade me that a sample of 572 is large enough to reflect the complexities that this study asks of it in relation to two cities the size of Sydney and Melbourne. Some of the cell sizes in the second exhibit are bound to be ridiculously small. I note that the number of respondents in the 18-24 years category is just 8 persons, covering both cities.

I also worry that the apartment options offered to the Melbourne respondents are unrealistically attractive. The study assumes one bedroom apartments are 85 m2 and two bedroom apartments are 115 m2. That’s much higher than the average in the inner city and even projects at suburban Doncaster — like the Madison, The Pinnacle and The Arcadia — have one bedrooms in the 50-60 m2 range and two bedrooms in the 70-80 m2 range. I’d be less concerned if the prices put to respondents were correspondingly inflated but I’m not sure that is the case.

While I have some reservations about technical issues, this is an interesting and valuable report. There’s lots more to it than I’ve mentioned and I’ll return to it shortly.