Spare room capacity

[Francesco]

Some D&G posters have been saying that rent rise will be absorbed by spare room, couch, etc with friends, family and relatives. Apparently, there is an ABS measure of spare room capacity and in 2006 it was already down to 12% (50% drop over 4 years). The extract below is taken from Wealth Builders newsletter.

By this measure, even the spare room is getting hard to find in 2008? Good news for IPs.

"With building approvals at an all time low and the average household bulging at the seams with children staying on longer and spare bedrooms being rented out to friends and family who cannot find alternate accomodation (ABS, Australian census data, number of housholds with a spare room down from 62% in 2002 to 12% in 2006), rents are set for solid growth in the short term."

 

[Gremlin]

Not according to the ABS website. In fact quite the opposite - whilst they don't show time series, the text conveys a message of increasing availability of spare rooms.

http://www.abs.gov.au/ausstats/[email protected]/bb8db737e2af84b8ca2571780015701e/D1170F1D46AB8176CA2573D20010F79D?opendocument

Directly taken from this page...

In capital cities, the proportion of households with one or more spare bedrooms ranged from 64% in Darwin to 86% in Perth (graph 10.4), while the proportion across all capital cities was 77%. Outside of capital cities, the proportion of households with spare bedrooms was higher at 82% - possibly associated with higher proportions of separate houses in these areas.

 

[Francesco]

Not according to the ABS website. In fact quite the opposite - whilst they don't show time series, the text conveys a message of increasing availability of spare rooms.

http://www.abs.gov.au/ausstats/[email protected]/bb8db737e2af84b8ca2571780015701e/D1170F1D46AB8176CA2573D20010F79D?opendocument

Directly taken from this page...

Interesting, this concept of spare utilisation, in my house we have 3 adults and 3 bedrooms, but have no spare capacity. One bedroom is used as the study/home office of the family. We already need more rooms to house our guests!

 

[RumpledElf]

Outside of capitals there is a higher-than-normal proportion of little old ladies living alone. My town is full of them, they drift up and down the main street like wrinkly tumbleweeds.

And never underestimate the drain that hobbies take on spare rooms. Everyone seems to have a study nowadays. We have 4 bedrooms, 4 people, 6 computers to house, the kids are a bit disparate in age to share a room, and if I have any more of the smelly little tykes the computers get to keep their space and we'll just stack the kids or shunt the noisy one into the attic. As it is the noisy one has calculated I could fit 10 bunk beds in the baby's room so she expects me to have another 9 kids. No way.

 

[HiredGoon]

http://www.abs.gov.au/AUSSTATS/[email protected]?opendocument

While Australian households are becoming smaller on average, dwelling size (as indicated by the number of bedrooms) is increasing. The average number of persons per household has declined from 3.1 in 1976 to 2.5 in 2005-06. In the same period, the proportion of dwellings with four or more bedrooms has risen from 17% to 28% and the average number of bedrooms per dwelling has increased from 2.8 to 3.1.

In 2005-06, most households enjoyed relatively spacious accommodation. For example, 87% of lone-person households were living in dwellings with two or more bedrooms; 75% of two-person households had three or more bedrooms; and 35% of three-person households had four or more bedrooms. Over a fifth (23%) of three-bedroom dwellings, and 9% of four-bedroom dwellings, had only one person living in them (table 10.3).

The Canadian National Occupancy Standard is widely used internationally as an indicator of housing utilisation. The measure assesses the bedroom requirements of a household by specifying that:

* there should be no more than two persons per bedroom
* children less than 5 years of age and of different sexes may reasonably share a bedroom
* children less than 18 years of age and of the same sex may reasonably share a bedroom
* single household members aged 18 years and over should have a separate bedroom, as should parents or couples.

Households living in dwellings where this standard cannot be met are considered to be overcrowded.

Only 2.8% of Australian households in 2005-06 were assessed as needing one or more extra bedrooms to meet this occupancy standard. The proportion of households experiencing overcrowding was highest among households with five or more members (18%), and among households living in one-bedroom (4%) or two-bedroom (5%) dwellings.

In contrast, 78% of households had one or more bedrooms above the number required to meet the standard. The proportion of households with spare bedrooms was highest among two-person households (90%) and among households living in dwellings with four or more bedrooms (91%).

We have also documented housing shortage here:

http://bubblepedia.net.au/tiki-index.php?page=HousingShortage

Australia has never had so many houses or bedrooms per person in our history. Nor has there ever been as many empty bedrooms or vacant houses (830,000 or almost 10% of the housing stock according to ABS 2006). We have constantly built houses faster than population growth.

Does this sound like a shortage to you?

 

[DavidMc]

Does this sound like a shortage to you?

Why is stuff like this happening then?

http://www.theage.com.au/national/o...esperate-melbourne-renters-20080714-3es1.html

 

[HiEquity]

Does this sound like a shortage to you?

What a load of BS Hired Goon! By that measure a 4 brm house can "reasonably" have 2 parents plus 3x2 = 6 "children" under 18 = 8 people living in it! Typical academic waffle - I know the extent to which I would avoid that type of situation by getting a bigger place! My sanity is too important!

Please try to temper these types of arguments with some reality. There are good reasons why the 4th bedroom is typically reserved for a study/gym/storage room/whatever. They're mainly grouped into a group of characteristics under the title "quality of life".

There are little to no financial considerations made here. How many families even think of getting in a boarder to "fill" the study? Where would they put the computer? Things have to get very grim before we give up on improving our living standards... until then we will all keep striving to "keep up with the Joneses".

 

[Jimmy255]

Am I missing something here? A spare room doesn't mean it's a room for rent! My parents house could take half a dozen people with the studies and storage rooms they have, but they aren't going to do that. It's not lego, you can't pick a room off one house, a room off another, and BAM: rental property.

 

[HiredGoon]

Why is stuff like this happening then?

http://www.theage.com.au/national/o...esperate-melbourne-renters-20080714-3es1.html

Because while the data indisputably says that the total number of houses to people is higher than it has ever been, the bubble in prices relative to rents has caused house prices to have low yields and thus the focus is on capital gains and not rents.

Thus a lot of houses have shifted purpose from being shelter to being get rich quick schemes.

-Held empty to sell to OOs (the amount of unsold inventory is very large at the moment)
-Renovation
-Running out of finance to continue development projects
-Keeping a house you don't need but can't be bothered renting out (why not if capital gains exceed holding costs)

http://bubblepedia.net.au/tiki-index.php?page=EmptyHousesEffectOnTheMarket

This same process has happened in other bubble markets around the world. Then after the market tops out and declines, people realise that there wasn't a shortage, but instead speculation had caused over-demand:

This is happening in Perth:

http://www.wabusinessnews.com.au/en-story/1/64563/Perth-houses-prices-drop-30-000-

Mr Druitt said the large number of properties for sale punctured the myth of a housing shortage. "In WA we have a situation of oversupply - not a problem with undersupply, and this is due to the strength of building activity between 2001 and 2007," he said.

Without capital gains, you need yield - so houses start to come onto the market and speculative demand decreases. Many sellers refuse to accept the new market price and they turn houses into rentals.

Mr Druitt said the once tight vacancy rate for tenants had now returned to normal, with REIWA recording a comfortable 3 per cent vacancy rate, illustrating many new properties had flooded into the rental system as investor/owners now found it a difficult time to sell.
"For the first time in several years tenants should now find it much easier to find a suitable home. There is much more stock available and much more competition amongst owners to secure good tenants.

 

[Peter 14.7]

Other than the fact many empty nesters have planned for the spare room to be office, den, sewing rooms, even junk room etc...I have one daughter and one wife and even one kid causes enough havoc...

Our new home is to be 3 bed with external office over seperate garage.

The plan, one room us, one room visitors/adult escape room and daughter stays in one bed until 14 (hummm 16) then we swap office for bed room as she will want the privacey " you DONT understand DAD!!!" and we will be too old to go up stairs then.

I know, without asking, what good wife will think about leaseing any of these rooms to anyone else

Peter 14.7

 

[LynnH]

Peter,

I agree completely! In the space of the last few years we have gone from housing 2 adults and 3 kids in a 4 bedroom home .. to being empty nesters! Am in the process of having a huge clean-out and reorganization - and certainly won't be leasing out any of this newly-discovered space! Sheer bliss!!!

Cheers
LynnH

 

[depreciator]

Am I missing something here? A spare room doesn't mean it's a room for rent! My parents house could take half a dozen people with the studies and storage rooms they have, but they aren't going to do that.

Oh dear, you've done it now Jimmy. Don't you see, they won't have choice. Your parents are now going to be on the Goon's list. He and his morose mates are covertly putting together a list of every spare room in the country and they are going to post the addresses on their sad site. So your parents one day will find a displaced family at the door demanding access to your mum's sewing room.
Scott

 

[boomtown]

Just for kicks I just had a look in my favourite suburb because I havent checked the rental situation for awhile.

There is exactly 1 property advertised for rent that would be suitable for my target tenants. And they want 11% more than I charged in May. Looking good

 

[Dazz]

This is happening in Perth:

"Mr Druitt said...."

Unfortunately for you HG, the quoted expert and esteemed Prez of REIWA wouldn't know if his a$$ was on fire. He's so busy giving little tid-bit interviews and 20 second media grabs every day, he wouldn't know whether he's Authur or Martha. Trouble for you is, you don't know that, and blissfully assume the quoted expert actually knows what he is talking about.

Perth is such a huge and varied market, no one individual is either affected nor can take advantage of what Druitt says or you quote as being true. It's just too big. But once again, that's not your aim....is it

I dunno who's feeding him his data, but if he spent an hour a day poking his head out into the real world, he'd change his tune about the lack of supply.

You really do place way too much emphasis on ABS data and quoted experts, instead of what is actually happening. But as we know, that's all you've got. You haven't a shred of real life property experience on which to base your opinions or any of us can learn from.....have ya.

Your quotes and statistics sound absolutely fantastic and really really convincing though. I'm impressed....you've won me over.

 

[RumpledElf]

There's nothing for rent in the area I bought an IP in. The new workers in the town are actually resorting to renting the spare bedrooms from the local old wrinklies, and of course there's lots of new houses being built.

So, those empty bedrooms *will* get freed if the demand gets extreme.

 

[plusnq]

So, those empty bedrooms *will* get freed if the demand gets extreme.

Small correction "So, some of those empty bedrooms may be freed if the demand gets extreme."

Not all OO or investors will want or need to maximise the utility of the asset (wear and tear, increased maintenance issues, public liability issues, legislative/regulatory problems etc etc).

When I first moved to Mt Isa in 1992 an unairconditioned, unlined garage was offered to me for $120/week. The owner was trying to maximise the return on his asset. But there were plenty of houses with spare rooms in family houses. So not everybody needed or wanted to maximise the return on their asset. Property is a b*gger like that. People have emotional needs/wants/attachments that far outweigh simple economic imperatives.

Cheers

Shane

 

[Andrew_A]

Looking in my areas there isn't much to rent at the moment, and the prices are going higher which is nice. I'm going to be asking for a 10% increase in rental minimum on one place next lease renewal. That
s the present value, might be different in a few months time.

Capital gain is still ticking over faster than that (even to the present day as best feedback you can get without selling will give you .. eg valuers and comparitive sales) on a YOY basis.

So who knows what is in store? Maybe nothing nice perhaps, but to set sail as an investor you need to open your eyes and see what is actually there at the moment rather than what you wish to see.

 

[Francesco]

Based on the feedback on the meaning of ABS 'spare space capacity', it is very apparent to me that the spare capacity may mean little for relief for renters because it may compete with the need:

1) home office
2) study
3) gym
4) sewing room
5) junk that accumulates including musical instruments
6) guest/relatives occasional visit

Renting may be considered if the spare capacity is located where the renters are and if there are renters, provided the wife allows it (my wife is strongly against it).

Generally, speaking then IPs are for renters, not the spare space capacity of private RROR.

 

[LynnH]

Generally, speaking then IPs are for renters, not the spare space capacity of private RROR.

RROR??? Residents' Right (to their) Own Residence, perhaps?

Cheers
LynnH

 

[HiredGoon]

The way the empty bedrooms will be used is not a direct renting out of bedrooms to strangers. Here is an example I know where it has happened:

I have a friend who can no longer afford their mortgage repayments, so they have moved back in with their parents (who had 2 empty bedrooms). They then turned their house into an investment property.

Thus, a whole new rental property came online adding to supply because of empty bedrooms in another house.

But if you look around the country, there has been massive housing over consumption which people have confused as investment. People also confuse decoration with investment, taking out LOCs to buy new kitchens, for example. People buy large houses they don't really need because "take out the biggest mortgage you can afford" (to maximise capital gains) has been the motto of a generation.

An example in the news recently was a student living in a house by herself who had to take on a room mate. How could a student afford a house by herself? Her parents bought it and were negatively gearing it to her (probably below market rent - she's a student). I don't think it is historically normal for a student who works part time to live in a big house by herself there is lots and lots of capacity to increase density further - and it will happen once people understand they have confused housing over-consumption and decoration with investment.

If you follow the motivations backwards on that girl living by herself, I think you'll find that she is over-consuming real estate because her parents are betting on price rises. A LOT of people are betting on price rises around the country. Just another example of a house being used as a speculative gambling chips not primarily as shelter (having artificially low density). This is why despite having record houses, empty houses and bedrooms per person we have a "rental crisis" - at least until the speculative mania ends and the houses are efficiently used as shelter once more.