Australian homes don’t suit the ageing population all that well. They may suit the rich, but they are too expensive for the rest. That means we should train our focus on more affordable housing.
But how do we do that?
Through smarter and smaller housing.
I Love Real Estate client Richard understands the value of offering smaller housing in the current market.
When Richard came to I Love Real Estate, he was nearing the end of his rope. After coming to Australia from China, he lived in a house with eight other students. The chaos nearly cost him his girlfriend and he needed to make a change once he’d finished his studies.
Richard moved into an apartment and started to explore the idea of investing in real estate. Eventually, he found us and started to build his portfolio. He’s worked on a bunch of successful projects since then.
One of those is a simple, two-bedroom unit in Western Sydney. With a $30,000 renovation, it cost him $375,000. He’s able to rent it out for $340 per week, which is ideal for the Sydney market.
What you need to understand is that smaller housing is where the Australian property market is going. In this article, we explain why and discuss some of the things you can do to achieve success with smaller properties.
In the past, the wages and cost of living weren’t that far apart. Today, however, they are very different. Why? It’s because wages have remained flat, more or less, when adjusted for inflation. But on the other hand, housing costs went up by a lot.
That’s the situation in 2020 and it’s not going to get any better. There is capital growth in Australia but without any real wage growth to speak of. That is a serious problem, and it’s starting to show up in the most unusual places.
For example, more and more people are living in their cars because they can’t afford today’s housing costs. They can’t even afford to live in a caravan park. That’s going to cost them $205 a week and the council will throw out anybody who can’t pay. Because of that, more and more people have to move around all the time.
All of that is what smaller and smarter housing can solve. While it is cookies and cream, for now, it will become the new vanilla. Who would want to live on a tent site for $205 a week when they can afford a real home, right?
And in terms of housing, it’s only getting harder across the country. The government says that Australia needs 60,000 social houses and 75,000 affordable homes. This means we need 135,000 homes to solve the housing crisis.
Take the case of a lady who lives in a bus. She moved out of her house to live in a bus at the age of 51. Now 81, she’s made it through three decades living that way.
In her words, she chose to live in her Toyota Costa because the rent was $300 a week, or $10 more than her pension.
She’s had her ups and downs – and it’s mostly down. For one, the Rangers would chase her off after she parked the Costa.
The upside, according to her, is that she is not sick. However, she is battling on by herself with nobody by her side.
It’s also important to stress that women are particularly vulnerable. Many have to take care of the young and can only work part-time jobs. It’s also hard for them to get ongoing work. This is especially true for those in their 50s and 60s, or before they qualify for the age pension.
As you may know, granny flats are resurgent all across Australia. You don’t even need the council’s approval to build one, as long as it meets the requirements.
In NSW, for example, it has to be on a 450sqm block. And you can have them measuring up to 60sqm.
Western Australia quickly followed and allowed attached granny flats. But with WA being WA, they allowed the flats to be 10sqm bigger.
In contrast, Queensland refused to set it at the state level and left it to the councils to decide. So, Ipswich’s council followed NSW in allowing 60sqm granny flats, while Logan went with 70sqm.
But recently, Logan has decided to charge $23,000 more for the attached granny flat. And they’re also charging another $25,000 for the four-bedroom house next to it.
And it’s been a hit.
Firefighters, officers, and nurses are renting these granny flats and they love them.
So, what can people do to get more affordable housing in Australia? And how can they get more cash flow and capital growth? Mind you, we already have vanilla, and that’s the four-bedroom house. What then?
The answer is to reinvent the game and disrupt the market. That’s where Zipf’s law comes in. Again, this law says that the only way to dethrone the number one is to change the game.
Way back when, Nokia and Blackberry ruled the roost. So, how did the iPhone make it to the top? Apple disrupted the game. They started by making the iPod. Then, they created a million apps and gave the iPod a touchscreen. And they later developed that into a mobile phone.
Apple reinvented the game and left Nokia and Blackberry behind.
Coming back to real estate, you can see that houses have to get smaller and developers have to decide on what to build. But clearly, people need smarter designs.
Developers can switch from 2.4m high rooms to 2.7m, for example. They can even build homes that are 7m high on one end and 3.5m on the other. That would increase the rentable space from 85 to 160sqm.
Another wonderful way to bring change is to switch to the body corporate. The rules are different, and there is more freedom. Developers can build with higher density and put management on-site as well. It’d be possible to build, say, six houses on 690sqm or three on 350sqm.
Building six houses on 690sqm increases the cash flow. That is how to win at monopoly and grow the portfolio.
Another way is to build co-operatives to create mortgage-free housing. Co-operatives have been around for a while and they’re great.
For example, a family could buy a two-story home and live on the second floor. They could then rent out the ground floor. There could be one bedroom on the upper floor for the family and four on the lower for the tenants.
The owner can travel around and leave the tenants to look after the house. The best thing about this is that these tenants won’t have access to the upper floor.
You can do that through a co-operative. That’s because it’s legal to buy and sell under the market price for members of the same co-operative.
Smaller and smarter homes are the answer to Australia’s unaffordable housing crisis. As the most vulnerable demographic, many ageing Australians can’t afford expensive homes.
Granny flats and building on body corporate may hold the answer. Buying a home through a co-operative is another option.
But whichever you choose, know that they have a similar characteristic in smaller and smarter designs.