By Angie Zigomanis, Senior Manager, Residential Property at BIS Shrapnel
Over the past 30 years, the housing market has been transfixed on the Baby Boomers. And why not?
It’s the Baby Boomers that have been the main drivers of the composition of housing demand over this period, firstly as young family buyers of affordable housing in the outer Sydney suburban estates, and then as upgraders into McMansions as their children grew into teenagers. As a group it has also fuelled investment demand as they sought to position themselves for future retirement.
With the oldest of the Baby Boomers now reaching retirement age, and their children having moved into adulthood and left the family home, the industry is now waiting with bated breath on their next movement in the housing market.
But are we holding our breath for something that won’t happen?
Initial analysis by BIS Shrapnel for its study into Generation Y in the Owner Occupier Market suggests in doing so we might turn blue in the face – because it’s actually Generation Y that will be the dominant force in the Sydney owner occupier market over the next decade. This shift in market force could change Sydney’s very horizon by 2024, but what shape that horizon will take is still unclear.
Certainly, population growth and household formation trends indicate that the strongest growth over the next decade will occur in households with a household head aged 65 to 74 years old (where most Baby Boomers will fall by 2024), followed by 75 to 84 year old households. However, households aged 35 to 44 years old, into which Generation Y will fall into over the next decade, are not too far behind (Chart 1).
Chart 1: Projected growth to 2024 in number of households by age of household head, Sydney
Over the next decade, the transition of Generation Y from their 20s and early-30s into their mid-30s and early-40s will be marked by significant changes in their situation and lifestyle. Generation Y have been characterised as a rental generation, predominantly living in multi-unit dwellings rather than houses, and this group has fuelled the Sydney apartment market over the past decade.
But will this be the case in the coming decade? A profile of current 35-to-44 year old households suggests changes are coming (Chart 2). There are a greater percentage of households with children (68 per cent compared to 36 per cent of Generation Y households), who are more likely to be living in detached houses (61 per cent compared to 41 per cent of Generation Ys), while 65 per cent are owner occupiers (compared to only 45 per cent of Generation Ys).
Chart 2: Household preferences by age of household, Sydney
By comparison, the Baby Boomers are already settled in their homes and are unlikely to shift in large numbers. Analysis of the 2011 Census indicates that only 15 per cent of 65-to-74 year old households and 11 per cent of 75-to-84 year old households reported a different address five years prior. In contrast, the figure for 35-to-44 year olds was much higher at 51 per cent, although a percentage of these were also likely to still be rental households.
Even accounting for the rental households, the figures suggest that around 257,000 Generation Y households in Sydney will purchase a dwelling as an owner occupier over the 10 years to 2024. This is a massive two-and-a-half times the 73,000 Baby Boomer households that will be expected to have downsized over the same period.
With Generation Y the main driver of owner occupier demand over the next decade, the key question is: to what extent they will follow their predecessors?
This is a generation more attuned to favouring a location based on lifestyle rather than on dwelling type. What trade-offs will they have to make in the future regarding price and location versus the type of dwelling that will accommodate their changing circumstances?
The most successful planners and developers will be those that can position themselves to ensure the appropriate product is being supplied to meet this upcoming wave of demand – yet while BIS Shrapnel is seeking the answers in our upcoming study, at this stage it’s unclear what that appropriate product will be. It may even be something very different to what is being offered in the market currently.
Angie Zigomanis is Senior Manager, Residential Property at BIS Shrapnel. More information about this research can be found here: Generation Y in the Owner Occupier Market.