Australia has a glut of bedrooms but a dearth of policies in place to make these rooms and homes available to those who need them most

The last Census showed that across Australia we have ample bedrooms to cater to our population yet the lack of new housing supply over recent years along with increasing demand for homes has resulted in increases in home values. Particularly in Sydney and Melbourne the escalation in home values over recent years has been strong while most other capital cities have largely remained on the sidelines.

The 2011 Census showed that at that time there were 21,507,717 residents of the country. The data also showed that there were 7,760,320 private dwellings which were occupied at the time with a further 10.7% unoccupied. Given this, and if we assume that everyone has a dwelling to live in, each occupied dwellings would have an average of 2.77 residents.

Number of bedrooms

According to the Census data, on average occupied dwellings in Australia have 3.1 bedrooms which is theoretically more than ample bedrooms to house the population. The above table which is lifted from the Census shows that there are far more bedrooms than required across the country. In fact, if we exclude those labelled as ‘none’, assume the 4 bedrooms or more category is just 4 bedrooms and exclude those where the number of bedrooms aren’t stated there were 22,866,601 bedrooms at the time of the 2011 Census. When you consider that many married couples sleep in the same room there is actually a substantial oversupply of bedrooms nationally.

The problem is we have a housing market and taxation system which largely discourages home owners from moving to more appropriate accommodation as their lifestyle evolves. Furthermore, the high cost of housing makes it difficult for some younger home owners to move into more appropriate accommodation as their family grows. First of all, home owners are taxed via stamp duty when they buy a new home, if they also sell they incur agent commissions. Both of these factors act as a disincentive for home owners to move on a more regular basis.

Chart 2

The disincentive for home owners to move on a more regular basis is highlighted when we look at the turnover of house and unit stock. On a monthly basis, the record-high number of sales occurred in July 2003 when there were 59,414 sales over the month. In comparison over the past 12 months there has been an average of 40,561 dwelling sales a month which is -32% lower than the peak.

While sales volumes peaked in July 2003, the national population was recorded at 19.7 million persons at the end of June 2003. The latest data to September 2014 shows that the national population was 23.6 million persons which is 3.9 million more persons than there were in June 2003. Despite the fact that the population is substantially larger than it was in 2003 there are now fewer homes selling.

Housing is one of the most heavily taxed asset classes; the most recent data for the Australian Bureau of Statistics (ABS) showed that over the 2012-13 financial year, $35.931 billion in property related taxes were collected by state and local governments. Looking at the breakdown of this data, property related taxes were collected from the following sources: 17% was land taxes, 40% was municipal rates, 36% was stamp duty on conveyances, 3% was government guarantee borrowing levies and 4% was from other sources. Stamp duty in particular is the most contentious of these taxes because it is only collected from homes which are transacted rather than being broadly taxed on all homes. Over a typical year only around 5% to 7% of properties nationally are sold, given this more than a third of all property related revenue is collected based on how many homes are sold in a given year. As I have mentioned previously, in my opinion shifting away from a turnover dependent tax such as stamp duty to a more stable and broad tax such as land tax would seemingly make sense as well as potentially improve labour mobility and encourage residents to shift into more appropriate accommodation.

While investment properties incur capital gains tax, the sale of a home that is owner occupied doesn’t incur any capital gains tax. If the owner occupied home is sold, agent commissions are payable and if a new home is purchased stamp duty would be payable. This is probably one of the major reasons for the excess number of bedrooms across the country, after the children move out of home there is simply no real incentive to downsize. Furthermore, many homes have seen significant value appreciation over the past 25 years so there is substantial equity in these homes which can be withdrawn by the owners.

As owners of owner occupied property enter into retirement, their tax-free home is also currently not included in the pension asset test. Essentially this means that if an owner has held their home for say 25 years they have likely seen a significant rise in the home’s value and can then retire and still receive the pension. Again, if they were to sell and re-purchase they would incur stamp duty so there is little incentive to do so. Most people enter retirement with little or no mortgage so excluding the family home from the pension asset test seems counter-intuitive as it creates an additional cost to the government for people who can afford to sell or take out a reverse mortgage in order to fund their own retirement. On the other hand, there is the argument that some pensioners have very little other than their home to fund their retirement so there would likely need to be some balancing with regard to this policy. You also don’t necessarily want to put pensioners in a position where they have to sell their home to fund their retirement and as a result have to move further away from their support network.

Australia needs to investigate ways to encourage greater household mobility along with encouraging people to shift over time into more appropriate housing. The removal of stamp duty would seem like an easy place to start along with including the family home in the pension asset test for retirees. Stamp duty removal would make it easier for home owners to move into more appropriate and suitable accommodation as their family life cycle changes. Including the family home in the pension asset test may act as a disincentive for retirees to stay in their large tax-free homes and would also reduce the impost on the Government to pay a pension to these retirees, many of whom have the equity in their home to fund their own retirement or could release the equity to fund their retirement by moving to a smaller home.

The data clearly shows that there isn’t an undersupply of bedrooms it is simply that many of these homes are locked away from the market because there is no incentive to move homes. Incentivising home owners to shift to more appropriate accommodation could go a long way to improving supply-side issues in the housing market.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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