Below is an article by a real estate commentator from Australia. But the same can be applied to Singapore. In Australia's capital cities, future demand will be 55% in houses, 45% in units.
Houses are defined as non-strata homes. Units are referred to townhouses (stratified) and apartments.
Yet, in cities like Melbourne and Sydney, > 50% of the approvals are for units. It means the city is building the wrong type of homes for future demand and the price appreciation for units will be inferior to well located houses.
In Singapore, the trend is the same. 90% of the existing housing stock is either HDB, private apartments or townhouses. Only 10% is non strata homes. Of the approved dwellings, 95% are units and 5% houses.
Let's look at the units in Singapore. The trend is towards smaller sizes. The average size of private apartments sold in the last 2 years fell from around 1200 sf 10 years ago to 750 sf. This is a huge 37.5% fall in floor area! Have you ever tried living in a 750 sf apartment? My wife and I rented a 2 room 1 bath HDB a few years ago, which was around 700 sf. We felt extremely claustrophobic and felt sick very often. The master bedroom was around 200 sf. There was no en suite. The common room was around 150 sf. Because there was no store room, we used the common room as a store room. The living room was around 150 sf, kitchen 200 sf (I don't understand why the kitchen has to be so disproportionately big). Needless to say we moved out in less than 1 year. It was more suitable for a single person than a couple.
Our home is around 1100 sf, with 2 people, we felt a lot better. But now that we have a new addition to the family and a maid, 1100 sf is beginning to feel a little small because the baby needs to have his own room preferably. We need to look for a place with 3 bedrooms, > 1300 sf for sure. I will have to look for old townhouses or apartments in the CCR to meet this need in the next 3 years.
Demand for > 1000 sf Will Increase
Now if most of the apartments built are < 800 sf, it could only cater for singles and at best, childless couples, although with so much "dead spaces" like aircon ledges and bay windows, I doubt it is suitable even for couples. The older apartments of > 1000 sf must be in greater demand.
I therefore infer that prices of 2 beds, 2 baths apartments with 1000 - 1300 sf will increase faster in future.
Retirees To Downgrade To 800 - 1000 sf 2 Bedroom Apartments
What about the ageing population? How will it affect future demand? There will be an increase in demand from retirees without children living with them. It will drive up the demand of smaller apartments of around 800 - 1000 sf, 2 bedrooms and above. It is very inconceivable for retirees to want homes with 1 bedroom because they would prefer their grand kids and kids to stay over in their visits or an extra room to look after the grand kids.
Demand For > 1300 sf Apartments / Townhouses to Drop
As family sizes get smaller and the average household size to fall from 3.5 to 3 in future, the demand for 4 bedrooms and above houses and apartments will fall. Imagine a typical family of 2 adults, 1 domestic help and 1 child. The demand will be at most for a bigger 3 bedroom apartment with 1 domestic helper room. There will be a need for 2 bathrooms at least.
Anything larger than that will be unaffordable. Imagine a 1500 sf house at 1200 psf. That will cost SGD1.8m. The average household income is SGD111,360. The apartment will cost 16.2x of household annual income.
I am an exception however as I crave for more space if I were to live in Singapore for a few more years. I desire a 1300 - 1500 sf apartment of 3 to 4 bedrooms (1 master, 1 for the child, another for the helper and a spare for guests), 3 bathrooms, in a small project that is centrally located. It will not come cheap. But why compromise when one can migrate and live freely as an investor / business person?
Houses are defined as non-strata homes. Units are referred to townhouses (stratified) and apartments.
Yet, in cities like Melbourne and Sydney, > 50% of the approvals are for units. It means the city is building the wrong type of homes for future demand and the price appreciation for units will be inferior to well located houses.
In Singapore, the trend is the same. 90% of the existing housing stock is either HDB, private apartments or townhouses. Only 10% is non strata homes. Of the approved dwellings, 95% are units and 5% houses.
Let's look at the units in Singapore. The trend is towards smaller sizes. The average size of private apartments sold in the last 2 years fell from around 1200 sf 10 years ago to 750 sf. This is a huge 37.5% fall in floor area! Have you ever tried living in a 750 sf apartment? My wife and I rented a 2 room 1 bath HDB a few years ago, which was around 700 sf. We felt extremely claustrophobic and felt sick very often. The master bedroom was around 200 sf. There was no en suite. The common room was around 150 sf. Because there was no store room, we used the common room as a store room. The living room was around 150 sf, kitchen 200 sf (I don't understand why the kitchen has to be so disproportionately big). Needless to say we moved out in less than 1 year. It was more suitable for a single person than a couple.
Our home is around 1100 sf, with 2 people, we felt a lot better. But now that we have a new addition to the family and a maid, 1100 sf is beginning to feel a little small because the baby needs to have his own room preferably. We need to look for a place with 3 bedrooms, > 1300 sf for sure. I will have to look for old townhouses or apartments in the CCR to meet this need in the next 3 years.
Demand for > 1000 sf Will Increase
Now if most of the apartments built are < 800 sf, it could only cater for singles and at best, childless couples, although with so much "dead spaces" like aircon ledges and bay windows, I doubt it is suitable even for couples. The older apartments of > 1000 sf must be in greater demand.
I therefore infer that prices of 2 beds, 2 baths apartments with 1000 - 1300 sf will increase faster in future.
Retirees To Downgrade To 800 - 1000 sf 2 Bedroom Apartments
What about the ageing population? How will it affect future demand? There will be an increase in demand from retirees without children living with them. It will drive up the demand of smaller apartments of around 800 - 1000 sf, 2 bedrooms and above. It is very inconceivable for retirees to want homes with 1 bedroom because they would prefer their grand kids and kids to stay over in their visits or an extra room to look after the grand kids.
Demand For > 1300 sf Apartments / Townhouses to Drop
As family sizes get smaller and the average household size to fall from 3.5 to 3 in future, the demand for 4 bedrooms and above houses and apartments will fall. Imagine a typical family of 2 adults, 1 domestic help and 1 child. The demand will be at most for a bigger 3 bedroom apartment with 1 domestic helper room. There will be a need for 2 bathrooms at least.
Anything larger than that will be unaffordable. Imagine a 1500 sf house at 1200 psf. That will cost SGD1.8m. The average household income is SGD111,360. The apartment will cost 16.2x of household annual income.
I am an exception however as I crave for more space if I were to live in Singapore for a few more years. I desire a 1300 - 1500 sf apartment of 3 to 4 bedrooms (1 master, 1 for the child, another for the helper and a spare for guests), 3 bathrooms, in a small project that is centrally located. It will not come cheap. But why compromise when one can migrate and live freely as an investor / business person?
ARE WE BUILDING THE RIGHT STUFF?
I believe that demographics, eventually, shape everything. And whilst there is a demand for more compact housing, the want to live on top of each other (and the ability to afford the premium to do so) is at odds with Australia’s future demographic shape – and more importantly, what our key buying groups want & can afford.
The same thinking also applies to new McMansions in outer suburbia.
Let’s start from the top
As we outlined several months ago, we don’t use the more traditional generational demographic markers, such as Baby Boomers, when assessing underlying housing need or demand; we think they are too broad.
Instead, we break the housing demographic market into six distinct buyer segments:
The first chart below shows the relative size (by no. of residents) within each key demographic segment within Australia today.
But it is the change in household formation that best determines future housing need, as shown by our second chart below.
Our second chart suggests that over the next ten years there will be a need to build more homes for first home buyers; people downsizing & retirees.
Annual housing need for young renters is projected to decline (and so, I have to ask who is actually going to rent out all those little inner city boxes?), as too is the demand for upgrader housing. So the need for those new, big suburban homes should also wane.
Housing required for aged care – for now – is likely to remain steady.
Working out how many new homes are needed (and what and where these new homes should be), is more than just dividing the annual projected total population growth by the average number of residents per dwelling.
What we like to do is work out what is happening in each of the six distinct buying segments. This provides us with a guide as to the real underlying need for new homes (remember, it is about household formation & not just population growth), and a better understanding as to what homes are actually wanted.
Let me demonstrate this by using first home buyers & those looking to downsize, as examples.
A bit more about first home buyers
Fast facts:
Important housing considerations: room to grow; affordability & property improvement
Preferred housing options: some apartments (inner city); some townhouses/duplexes & small houses (middle suburbs); larger detached & dual-income homes (outer suburbs)
What most buy: a property that can be improved & is capable of taking in a tenant/s to help pay the mortgage
And what about downsizers?
Fast facts:
Important housing considerations: low maintenance; convenience; like-minded residents; existing location; small projects
Preferred housing options: spacious apartments (inner city); townhouses/villas & dual-income homes (middle-outer suburbs)
What most buy: well-priced, usually in smaller complexes; private; secure & with space for visitors & grandchildren
Of course, some first home buyers might buy a small downtown apartment or many might choose to continue renting; just as those looking to downsize might just decide to stay put & age in their existing home.
Some from either group might buy a large home in outer suburbia, too.
But if the right housing is provided & importantly at the right prices, then many in these two sample markets – along with those in our other four key buyer groups – would buy. So factoring in considerations such as housing affordability is also important.
Housing that’s really wanted
Our second graphic below outlines what we think is needed when it comes to new housing across Australia over the next ten years.
Our modelling varies, according to location & local economics. For example, in a middle-ring suburb, many would opt for a two-bedroom property rather than one with a single bedroom. Many would prefer, in this situation, a three-bedroom dwelling, assuming they could afford it.
A household’s housing preference will usually change by location; with more opting for one-bedroom stock closer to the CBD & more wanting three+ bedroom properties in the more outer suburbs.
So the proportional range for each housing type shown in the graphic above, caters for location spread ranging from inner city suburbs to our regional centres.
End note
We need to provide much more diversity when it comes to our new housing stock across Australia. Some places are getting this right, whilst too many are not.
There needs to be much more choice in the housing mix than essentially tall things downtown & big boxes in the outer suburbs.
Town planning dogma is forcing too much new supply in the wrong places & for the wrong reasons. Governments at all levels are not interested in improving Australia’s housing choice.
All housing – not just new stock – is too expensive as a result.
We are not building the right stuff.
Many more Australians would move into more suitable digs if it was available to them. Not everyone wants to (or can afford to) either live in a three+ bedroom detached house or an expensive shoebox in the sky.
The same thinking also applies to new McMansions in outer suburbia.
Let’s start from the top
As we outlined several months ago, we don’t use the more traditional generational demographic markers, such as Baby Boomers, when assessing underlying housing need or demand; we think they are too broad.
Instead, we break the housing demographic market into six distinct buyer segments:
- Young renters
- First home buyers
- Upgraders
- Downsizers
- Retirees
- Aged care
The first chart below shows the relative size (by no. of residents) within each key demographic segment within Australia today.
But it is the change in household formation that best determines future housing need, as shown by our second chart below.
Our second chart suggests that over the next ten years there will be a need to build more homes for first home buyers; people downsizing & retirees.
Annual housing need for young renters is projected to decline (and so, I have to ask who is actually going to rent out all those little inner city boxes?), as too is the demand for upgrader housing. So the need for those new, big suburban homes should also wane.
Housing required for aged care – for now – is likely to remain steady.
Working out how many new homes are needed (and what and where these new homes should be), is more than just dividing the annual projected total population growth by the average number of residents per dwelling.
What we like to do is work out what is happening in each of the six distinct buying segments. This provides us with a guide as to the real underlying need for new homes (remember, it is about household formation & not just population growth), and a better understanding as to what homes are actually wanted.
Let me demonstrate this by using first home buyers & those looking to downsize, as examples.
A bit more about first home buyers
Fast facts:
- 35 to 44 years
- 3.3 people per household
- 36% no children at home
- 30% couples or living alone (lucky buggers!)
- A projected 20% of total new housing demand over next decade
Important housing considerations: room to grow; affordability & property improvement
Preferred housing options: some apartments (inner city); some townhouses/duplexes & small houses (middle suburbs); larger detached & dual-income homes (outer suburbs)
What most buy: a property that can be improved & is capable of taking in a tenant/s to help pay the mortgage
And what about downsizers?
Fast facts:
- 60 to 74 years
- 2.1 people per household
- 92% no children at home
- 71% couples or living alone
- A projected 32% of total new housing demand over next decade
Important housing considerations: low maintenance; convenience; like-minded residents; existing location; small projects
Preferred housing options: spacious apartments (inner city); townhouses/villas & dual-income homes (middle-outer suburbs)
What most buy: well-priced, usually in smaller complexes; private; secure & with space for visitors & grandchildren
Of course, some first home buyers might buy a small downtown apartment or many might choose to continue renting; just as those looking to downsize might just decide to stay put & age in their existing home.
Some from either group might buy a large home in outer suburbia, too.
But if the right housing is provided & importantly at the right prices, then many in these two sample markets – along with those in our other four key buyer groups – would buy. So factoring in considerations such as housing affordability is also important.
Housing that’s really wanted
Our second graphic below outlines what we think is needed when it comes to new housing across Australia over the next ten years.
Our modelling varies, according to location & local economics. For example, in a middle-ring suburb, many would opt for a two-bedroom property rather than one with a single bedroom. Many would prefer, in this situation, a three-bedroom dwelling, assuming they could afford it.
A household’s housing preference will usually change by location; with more opting for one-bedroom stock closer to the CBD & more wanting three+ bedroom properties in the more outer suburbs.
So the proportional range for each housing type shown in the graphic above, caters for location spread ranging from inner city suburbs to our regional centres.
End note
We need to provide much more diversity when it comes to our new housing stock across Australia. Some places are getting this right, whilst too many are not.
There needs to be much more choice in the housing mix than essentially tall things downtown & big boxes in the outer suburbs.
Town planning dogma is forcing too much new supply in the wrong places & for the wrong reasons. Governments at all levels are not interested in improving Australia’s housing choice.
All housing – not just new stock – is too expensive as a result.
We are not building the right stuff.
Many more Australians would move into more suitable digs if it was available to them. Not everyone wants to (or can afford to) either live in a three+ bedroom detached house or an expensive shoebox in the sky.
