Market Update

Selected coastal cities in Australia will reinvent themselves over coming decades as strong population growth and new households trigger a surge in the demand for new dwellings, according to a recent KPMG study on Australian housing.

KPMG carried out the landmark study, Australia on the Move, for the Property Council of Australia to assess future demand for housing across 41 cities until 2031.

The author of the study, KPMG Partner Bernard Salt, said it provides crucial insights into what the future could hold for some key seachange cities.

"In particular, the seachange cities of Mandurah, Hervey Bay, Sunshine Coast, Gold Coast and Cairns will more than double their housing stock over the 30 years to 2031; the housing stock in the industrial city of Gladstone will also double as a consequence of Queensland's strong population growth.

"The projected demand for new housing rises is sluggish in places like the Latrobe Valley, Adelaide and the three largest cities in Tasmania," Mr Salt noted.

Replicating a similar study completed by US think-tank the Brookings Institute last year, which concluded that 38 per cent of residential property in America by 2030 would be built over the preceding three decades, KPMG's Australian study concludes that by 2031 some 40 per cent of all dwellings will have been built over the preceding three decades.

"There is both an opportunity and a responsibility for this generation to strategically plan for the future development of our cities and the infrastructure they require," Mr Salt advised.

Major findings include:

Sydney adds most new houses: Most new dwellings constructed in Australia over the 30 years to 2031 will be located in Sydney. During this period Sydney's housing stock is projected to rise by 44 per cent whereas the population will rise by only 26 per cent. Sydney will contain 5.2 million people in 2031. Allowing for the annual replacement of some obsolete stock, it is estimated that Sydney will require 882,000 dwellings between 2001 and 2031.

Melbourne housing demand faster than Sydney in the short term: Melbourne's faster percentage and absolute population growth than Sydney in this decade is translating into a higher demand for housing in the southern capital. The study projects that Melbourne's annual rate of dwelling growth will average 1.6 per cent this decade, but fall to 1.3 per cent next decade. The same figures for Sydney are 1.4 per cent this decade and 1.2 per cent next decade. So, while Sydney might add more houses over 30 years, in the short-to-medium term, Melbourne is closing the gap.

Housing demand slows in 2020s: The demand for new houses is peaking in this decade with an average of 142,000 dwellings required each year at the national level. This figure is up from the 1990s annual average of 134,000 dwellings. However next decade this annual average demand figure drops to 128,000 dwellings, and in the 2020s it plummets to 109,000 dwellings. The report suggests this drop will lead to some structural adjustment within an industry that had geared to a building capacity 30 per cent higher 20 years earlier.

Brisbane heads a super region: Brisbane sits at the centre of a broad region of extraordinary demand for new dwellings over the 30 years to 2031. Over this period, Brisbane will build 528,000 dwellings, the Gold Coast will add a further 227,000 (more than Adelaide with just 150,000) and the Sunshine Coast will add 138,000. This combines to 893,000 new dwellings over 30 years or a flat average of 30,000 per year. This aggregate market is bigger than the Sydney market.

Housing demand linked to social change: There have been profound changes in household structure across Australia fuelling the demand for new dwellings. There were 3.20 persons per occupied dwelling in Australia in 1981; 2.74 persons per occupied dwelling in 2001, and this figure is projected to drop further to 2.38 persons by 2031. The report suggests that if you wish to glimpse 'Australia in 2031' then look no further than Hervey Bay because the projected average household size in 2031 for Australia existed in Hervey Bay in 2001 (i.e. 2.37 persons per occupied dwelling).

Mum, Dad and the Kids are on the back foot: The traditional nuclear family comprised 41 per cent of all households in Australia in 1991 (and a much higher proportion in the 1960s). This proportion fell to 33 percent in 2001 and is projected to shrink to 24 per cent by 2031. Mum, Dad and the Kids as a social institution is on the back foot (and will be extinct by the end of the century at its current rate of decline). The diminution of this group 'funds' other smaller households: singles, couples, single-parents. With the Mum, Dad and the Kids social-unit expected to reach skeletal proportions by the 2020s, household formation will slow down and this will have a direct bearing on a slower demand for new dwellings.