We are on the cusp of a housing revolution in Australia and it is going to fundamentally change the way we choose to live.
Welcome the rise of secondary dwellings and tiny houses.
It’s only a matter of time before every Government and Council in Australia allows secondary dwellings and tiny houses to be built ‘as of right’. What this would mean is that you only need a building certifier to sign off on the house before it’s built and occupied, rather than having to go through the expensive, timely and uncertain process of a council approval.
What it means for home owners and property investors is they can build a granny flat on their property for circa $100,000 and get an extra $400 per week as income. A game changer for housing affordability, both in providing affordable rentals, and helping homeowners pay off their mortgages sooner.
Revolutions are typically the outcome of a crisis, and we are in the midst of one at the moment.
There are 31,592 vacant houses in Australia today.
There are 45,000 people migrating to Australia each month from overseas.
There are 1.5 million Australians aged between 17 and 21, many of which will be seeking to move out of home for the first time.
It’s not pleasant reading… the maths doesn’t add up.
We don’t have enough houses for people to live in, and there’s no end in sight.
We are in this position because we haven’t built enough houses in the last two decades and we have an ageing population that needs to be replaced by young overseas migrant workers.
At the same time, the cost of building new housing has increased by 25 per cent in the last two years, and the cost of renting a house has increased by 20 per cent in the last two years.
Interest rates have increased by 3.5 per cent in 12 months, and the banks are still working off 3 per cent buffer rates in their qualification process, so it’s become a lot harder for investors to build the houses we desperately need.
Having said all that, it’s nothing the world hasn’t seen before. Most developed countries and cities have experienced housing shortages, with the result being an increase in homelessness short term, but eventually a rapid embracing of smaller and more affordable housing.
In Orange Country, California, it’s not uncommon to see two storeys, 3 bedroom houses built on 100m2 blocks.
In Toronto, home owners are increasingly buying three storey housing on 100m2 blocks and converting the bottom floor into a self contained unit to subsidise their mortgages.
In San Francisco, the birthplace of Uber and Airbnb, you walk along the streets and notice that garages have been converted into self contained Fonzie flats.
One bedroom housing is already the fastest growing housing type in Australia today, with the average household shrinking from 2.6 people per household to 2.5 people per household between 2016 and 2021.
Despite this, Australian governments and councils almost universally prohibits the building and renting of a second dwelling on a property, unless it’s occupied by a family member. Yet it’s the easiest and fastest way Government could get affordable housing built today.
Since 2010, the NSW Government has allowed secondary dwellings to be built as of right in all residential zoned areas. As a result, there are twice as many people living in small 1 and 2 bedroom dwellings than there are throughout the rest of Australia.
In September last year, the Queensland Government announced a new initiative that provided a 2 year embargo on the laws that prohibit secondary dwellings being built without approval.
The problem with the Queensland initiative – other than the fact it only has a lifespan of 2 years – is that it effectively allows previously ‘prohibited’ secondary dwellings to be rented out to unrelated parties, but unlike the NSW policy, doesn’t force the councils change their policies and allow them to be built as of right.
The rest of Australia is basically a no-go zone when it comes to secondary dwellings.
I’m not blaming Government either. We have one of the highest population growth rates of any developed country as well as an ageing population, so we are facing significant housing issues.
It’s only a matter of time before Queensland follows New South Wales in making their secondary dwelling policy broader. From there, I think every State in Australia will follow.
In a decade’s time, I think a significant portion of Australians will have a second dwelling on their block of land, which they rent out to subsidise their mortgage. I also think almost every first home buyer will build a granny flat or Fonzie flat on their block of land.
The numbers are too compelling for that not to happen. It’s a win for Government, who solve the housing supply issue. It’s a win for homeowners who either get their mortgage subsidised, an income in retirement, or a 6 per cent plus rental return as an investor.
If you own 2,000m2 of land and have 5 rental incomes coming in from 5 houses today, I think in 10 years’ time you will have at least 10 rental incomes coming in from 5 houses and 5 granny flats.
Let the revolution begin!
