Have buyers abandoned McMansions (forever)?

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). Read the rest of this entry »

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Are McMansions about class warfare?

It's big, but who would dream of calling it a McMansion? It's Beached House, a winner in this year's Victorian architecture awards

There was a very interesting trans-blog discussion over the weekend about one of my favourites topics – McMansions. It started earlier in the month when Helen at Blogger on the Cast Iron Balcony decided to “call bullshit on the popular story that criticising McMansions is equivalent to sneering at the working class, and denying them the good things in life”. She goes on:

In this narrative, the people championing the McMansion are the true socialists and stand with the working man and woman in their quest for a truly equal society.

She reckons it’s nothing to do with class. Her alternative interpretation is that McMansions are objectively just plain bad. That’s partly, she says, because they’re shoddily built, partly because they’re environmentally greedy, and partly because buyers are unwittingly duped by advertisers and marketers into wanting these big status machines.

Don Arthur at Club Troppo picked up on Helen’s post in passing on Friday in his regular Friday Missing Links. He must’ve been intrigued by the debate because he returned on Sunday with a nice, measured commentary on the topic, Together alone, why McMansions appeal.

I’m not going to get into the detail of this debate because I’ve looked at it before (e.g. see here, here, here and here, or go to Housing in the Categories list in the sidepane for a larger selection). However I do want to summarise in twelve simple points what I think are the salient matters in this ongoing debate.

One, what we call a McMansion in Australia is modest compared to the way the term is used in the US where it originated. In the latter McMansions are palaces, but here in Australia, any outer suburban two story home and garage produced by a developer, whatever its size, seems to attract the pejorative, McMansion.

Two, only cookie cutter houses constructed by developers are McMansions. Large architect-designed bespoke detached houses like these aren’t described in such sneering, deprecating terms.

Three, the great majority of fringe dwellings don’t fit the popular definition of a McMansion. For example, in Melbourne, more than two thirds of all houses built in the Growth Areas are single story (however for some critics that means little – they implicitly regard all detached fringe houses as McMansions).

Four, buyers of McMansions aren’t from struggle town – they’re overwhelmingly 2nd and 3rd home buyers.

Five, fringe area McMansions aren’t appreciably bigger, if at all, than all those renovated detached homes within established suburbs. The latter have the advantage of larger sites, so there’s scope to extend further. When account is taken of relative household size, the difference in per capita space between McMansions and established homes – such as those occupied by empty nesters – is likely to be even smaller.

Six, there’s no evidence McMansions are more shoddily built than smaller fringe dwellings, or apartments for that matter. That’s just out and out prejudice. Read the rest of this entry »


Why are outer suburban houses so damn big?

The economics of Seinfeld (click)

Everyone knows that Australians build the largest new houses in the world. According to the Deputy Governor of the Reserve Bank, real expenditure on each new dwelling is now 60% higher than it was 15 years ago.

Just why we need 85 m2 per person, on average, in our new suburban houses is an interesting question, especially given that the average household size in Australia has fallen.

As with most things, it’s the coincidence of a number of factors that provide the most plausible explanation, but in my view the key reason is that Australians increasingly see the purchase of a dwelling as an investment decision.

There was a time when buying a house was solely about consumption – i.e. shelter – but now it’s received wisdom that houses inexorably increase in price. They provide growing equity to borrow against in the future and capital to draw against if the unthinkable should happen.

Recent history has convinced home buyers that residential property is a good, even spectacular, investment. This reflects factors such as its tax-sheltered status, restrictions on supply, low interest rates and Federal and State home buyer assistance schemes.

From the perspective of many home buyers, a bigger house not only provides more consumption value but is seen as a sound long-term investment decision. Unlike a car, which depreciates in value, buyers assume every dollar spent on a house ultimately increases in value. A bigger house might even appreciate in value faster than a smaller house. Read the rest of this entry »


Why is road pricing a good idea?

What Americans mean by a 'McMansion'. Click for slideshow.

I’m not aware of anyone who disagrees seriously with the contention that car travel is underpriced. The consequence of this inefficiency is we drive more than we otherwise would and more than is socially optimal.

The idea of road pricing is that drivers should pay the real costs they impose on others through traffic congestion, pollution, noise and carbon emissions.

There’s also another force at play here which exacerbates the problem of excessive driving. There are some costs that drivers actually do pay – standing costs like depreciation, insurance and registration – that are “disconnected” from the perceived cost of travel.

A person deciding whether or not to drive somewhere will tend to take account of the cost of their time plus petrol, but they usually don’t perceive the standing costs. This under-estimation promotes more driving.

There have been various experiments with road pricing, such as the well known Singapore and London central city cordons (giving rise to amusing interpretations such as this one by Boris Johnson). However this is a technologically outdated approach – transponders and/or GIS technology mean it is now feasible to charge motorists in relation both to distance and traffic conditions i.e by location and time.

A driver who paid a price for a litre of petrol that included both external and standing costs would have a strong incentive to drive less. A gauge on the dash showing the total cost ticking over with every kilometre would provide an even more powerful nudge to think long and hard about the wisdom of driving.

Road pricing can be thought of in simple terms as a two-part per kilometre tariff that recovers both external costs and those standing costs that can be disaggregated. One part is a charge reflecting the general cost of using the roads. The other is a variable price reflecting specific costs like congestion in peak periods.

There are potentially some important benefits for the wider community from road pricing: Read the rest of this entry »