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How Australia's housing will evolve as our population booms

As populations grow and density rises in our cities, free-standing houses will become rare jewels for wealthy people.

Australia is on its way to having almost 50 million people. The latest population projections came out just last week and the Australian Bureau of Statistics (ABS) envisions a much bigger nation if certain criteria are met.

We just ticked over 25 million a few years ago and, despite falling birth rates, we can expect to be over 45 million by 2071 in the high scenario, the bureau says.

Chart showing information about housing and population.
(Source: supplied) (Jason Murphy)

How will Australia look at that point? There are many changes we can expect but probably the most important one is a change in how we live. Houses are going to become rarer and apartments will be more and more common.

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If we look at the biggest cities in the world, they are dense with apartments. Tokyo has almost no stand-alone homes. London is full of terrace homes and blocks of flats. New York is synonymous with skyscrapers but, even outside Manhattan, people live in apartment blocks of five or six stories.

In Australia, we already see this. Our biggest cities have far more apartments than our smaller ones. As the next chart shows, Sydney has mostly added homes that aren’t detached in the past decade.

Chart showing information about housing and population.
(Source: supplied) (Jason Murphy)

The future of Australia is bigger cities, and bigger cities doesn’t just mean growing outwards at the edges. It means densifying the middle.

The alternative plan is spreading out. We could make a big push to have lots of Adelaide-sized cities instead of a few big cities. That way, more people could live on quarter-acre blocks.

But history is not usually kind to planned cities like that. Canberra certainly hasn’t grown fast. It’s nearly a century old and still modestly sized. The Gold Coast is an exception but, of course, not a great example of spread-out living. It is a high-rise city.

Also by Jason Murphy:

Fighting against centralisation is a losing game, I fear. The forces that make people move to cities are predominantly economic. You can specialise more and make more money and access better services. The economy of the future is one where those sorts of “agglomeration economies” will matter more and more; not less.

Cycle of life

One way we could reimagine a world of fewer houses and more apartments is not by raising kids in apartments, but by moving more often. The amount of time we live in houses might change. People might stay in apartments longer and longer throughout their 20s, live in a house while they have kids, and then move back to an apartment, rather than retiring in their house.

That would be one option we could encourage via taxes and other rules if we still wanted kids to be raised in a home with a garden.

The message here is pretty obvious: it is likely to pay off to invest in land. We’ve seen so much house price growth in recent years that affordability is under threat and it seems like house prices couldn’t possibly get any higher. But they probably can. Remember, house prices are mostly land prices.

While there is a natural limit on the price a person can pay for a home, that limit doesn’t apply to land that can be used to create multiple homes. I live in a house on a block that has been subdivided. What was one house is now two. That’s common enough. Blocks of apartments keep popping up on old industrial land in the city too. The value of land can rise faster than the average purchasing power of home buyers, meaning land values rise faster than home values.

We’re already seeing this, with house prices rising faster than the price of attached dwellings over a long period. Land prices that will rise include land zoned residential that can be turned into apartments, and also land zoned residential that can’t be turned into apartments, because those kinds of neighbourhoods will become wealthier and wealthier enclaves.

As populations grow and density rises in our cities, free-standing houses will become rare jewels for wealthy people. This will come to seem normal. In New York, even Donald Trump lives in an apartment. A little house with a garden in Manhattan costs upward of US$4 million. You need to get pretty deep into Broooklyn and Queens before you can find a place on its own land for under a million bucks.

The other kind of land that will rise in price is land that’s not residential, yet. Industrial land, government-held land and agricultural land in or near cities is a big chance of being turned into homes in Australia. As we speak, the land bankers are no doubt busy lobbying for their land holdings to be rezoned so they can monetise their investments.

We’re already at the point where the average household can’t afford to buy the average free-standing house. Apartments will become the default choice for many. What we will need to do, however, is make apartments with more bedrooms. If apartments are going to be for more than just students and singles, we will need them to be bigger.

The population projections above forecast the birth rate to keep falling. That will be a self-fulfilling prophecy - families are unlikely to have multiple kids if they can’t find an apartment with more than two bedrooms.

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