Why Australia’s appetite for property is becoming smaller – and cheaper: Matusik

We like things big in Australia. Big homes, big cars, big meals, big characters – everything’s got to be larger than life.

Or does it?

Have you looked at new car sales lately? Fuel efficient, small to mid-size cars are driving out of the showrooms before they’ve even been loaded off the docks. Sushi restaurants and salad bars are elbowing McDonalds’ out of the way everywhere you look, and – well, Kerry Packer’s leading the TV ratings again. OK, some things never change – we still love our big characters.

In real estate, big homes have been on the nose for a few years. They’re a lot more expensive, and they cost a lot more to run and maintain. In 2011, only 1% of sales across Australia were for properties over $1 million, so big and expensive homes are a very small segment of the market.

On the other hand, apartments are more popular than ever before. The 2011 census confirmed they account for 14% of all dwellings, up from 11% in 2006. Apartments made better capital gains than houses over the past few years, and they’re becoming a lot more affordable, too.

But apartments – especially those in new developments – are changing. They’re getting cheaper because they’re getting smaller. There’s a strong trend towards higher quality fixtures and fittings too, adding substantial value for money compared to a decade ago.

Take a look at the developments near you, and I bet they’re mostly one or two-bedrooms, with the occasional three-bedder thrown in for good measure. There are one-bedroom apartments on offer in Brisbane that measure just 51 square metres – much smaller than the old standard of, say, 70 square metres including balconies – but still twice as big as the controversial 25- to 28-square-metre apartments being touted in New York at the moment.

Developers everywhere are responding to the market, and the market is telling them smaller is better; smaller sells. It’s a simple fact that smaller, cheaper apartments are selling off the plan a lot faster than bigger, more spacious, more expensive ones in the same developments. Some developers are even changing their designs mid-way through the off-the-plan sales period to increase the number of smaller apartments on offer.

Let’s think about the newest generation of apartment renters – Generation Y – because they’re the ones driving this trend. Notorious for not leaving home, they’re getting older and many have finally had the shove from mum and dad.

Gen Y isn’t into home ownership or picket fences – they place a lot more importance on living life for its experiences. And no surprise: they don’t spend a great deal of time at home. So they’re snapping up small, affordable apartments for rent in exciting inner-city suburbs, close to the action. If you’re investing in a hip suburb, Gen Y are your tenants.

Which is why the other big trend in apartment design is to separate the bedrooms as much as possible, allowing singles to live at opposite ends of a small apartment, crucially with a bathroom each. The design of an apartment will determine the sort of tenants it attracts, so developers are fine-tuning their products to make sure they appeal to the right rental demographic.

Apartments are becoming smaller, but they’re better designed and equipped, so tenants can more efficiently use the space the way they want to live. The bottom line is, they’re cheaper to buy and cheaper to rent – and can only grow in popularity with both investors and tenants.

Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition. Read Michael’s blog or follow him on Twitter or connect via LinkedIn.

For advice on navigating hotspots, download our free eBook: Tools for Getting Through the Hotspot Maze. This article first appeared on Property Observer.