Have buyers abandoned McMansions (forever)?Posted: August 17, 2011
It only seems like yesterday we were told Australia had the largest new houses in the world (e.g. see here and here). Now it seems we’ve seen the error of our ways. According to this press report, the head of residential communities at property developer Stockland, Mark Hunter, has no doubt the era of ever-growing McMansions is over – he expects home sizes to shrink as fast as they grew in the first decade of this century. Mr Hunter is reported as saying three-bedroom, two bathroom houses are the new sweet spot in the market:
With power prices increasing, people want more efficient homes and are happy to sacrifice extra bedrooms, rumpus and media rooms and make do with a single open-plan living and dining area opening onto an outdoor area.
Stephen Albin, the chief executive of the Urban Development Institute of Australia, says the trend to shrinking new home sizes is only just beginning:
I think there’s a massive shift going on and we are at the front end of it. People are starting to realise a five-bedroom house has other costs, from the amount of leisure time you lose maintaining it, to heating and cooling, and you are going to start to find we are at the front end of that shift
He sees a permanent change in Australians’ preferences. “The McMansion’s days are numbered”, he asserts, “just look overseas and see what’s happening”.
In a recent address to CEDA, the CEO of Stockland, Mark Quinn, argued that people are choosing less debt over having five bedrooms and a separate dining room they use once a year at Christmas. People are more patient now, he said, and rather than seek instant gratification they “prefer to wait and have less debt”.
Have Australian fringe buyers really lost their taste for big houses virtually overnight? And is this really a permanent change – is it a “paradigm shift”? Only a few months ago we were debating in these pages home buyers’ preference for seemingly ever-larger dwellings!
I’m hard pressed to see it. Sure, electricity prices – which really could drive a permanent shift toward downsizing – look like they’ll keep rising, but as I’ve pointed out before, there have been massive improvements in the operational energy efficiency of new detached houses over the last ten years. The per capita operating energy required by the average new greenfield dwelling in 2008 was about a third lower than it was in 2000. In fact it was lower than it was in 1960, nearly 50 years earlier, notwithstanding the size of the average new greenfield dwelling more than doubled over this period.
The latest edition of Property consultant Oliver Hume’s Survey of purchaser sentiment in Melbourne’s Growth Areas doesn’t suggest buyers tastes have changed. When the company asked land buyers what size house they intended to build, the proportion who said greater than 279 sq m was the same in June 2011 (30%) as it was in December 2010 (Oliver Hume say the actual size buyers end up building is about 50 sq m smaller).
We know that Australians are saving more and they’re borrowing and spending less – that’s a key reason for the current gloomy outlook in the retail sector. So we’d expect a more cautious approach by home buyers given current economic conditions. Some buyers won’t enter the market and some might even downsize. That’s pretty much what’s happened in the economically stagnant US at the moment.
Oliver Hume’s survey suggests that what’s happening in Melbourne’s Growth Areas is that the customary buyers of big houses — i.e 2nd plus home buyers and investors — are losing market share to first home buyers, who on average buy smaller houses. That is, there’s a compositional change in the size of dwellings.
But other things remaining equal, when conditions improve I’d expect buyers to pretty well go back to their old tastes and habits. They’re buying less because they can afford less or because they’re not as optimistic about future housing prices in the current climate. They’re not buying less because their tastes have changed permanently. Maybe they ought to, but that’s not the point at issue.
If I were a cynical person I might think it’s in Stockland’s commercial interest to encourage buyers to cut back on dwelling expenditure so as to maintain their spend on land. A drift to smaller lots need not disadvantage Stockland – the higher yield could work in the company’s favour. Encouraging buyers to take on less debt could make good commercial sense for Stockland in a slowing market if it means purchasers still buy something.
That’s if I were cynical: however let me give credit to Stockland for its new Selandra Rise development in outer south-eastern Melbourne. It offers lots as small as 212 sq m and as cheap as $145,000 (I’ve previously mentioned Stockland’s small lot offerings in its Highlands development at Craigieburn).
I could say the jury’s still out on whether there’s a structural shift in buyers’ taste toward smaller dwellings but really, I don’t think the Court’s in session yet.
BOOK GIVEAWAY: follow this link to be in the running for one of two copies of the new book by James Boyce, 1835: the founding of Melbourne and the conquest of Australia. Entries close midday on Thursday, 25 August.