01.24.2024 Buying Tips

Why Are There Not Enough Homes For Downsizers?

Why Are There Not Enough Homes For Downsizers?

A lack of downsizer properties is impacting Sydney’s property market more broadly.

We explain why.

A lack of downsizer properties is impacting the property market more broadly here in Sydney’s eastern suburbs. We explore why.

The rise and rise of the downsizer in Sydney’s eastern suburbs

In recent years, downsizers have become one of the real key demographics in Sydney’s eastern suburbs property market, with demand from this segment far outpacing the market more broadly.

On one hand, this should come as no surprise given the rate at which our population is ageing. According to Census data, between 2016 and 2021 the median age of an eastern suburbs resident rose two years – from 35 to 37 and the number of local residents aged over 55 rose 8.4%.

Many of the people who now fall into this bracket have decided that it no longer makes sense to live in the family home. They want to move – and they usually want to move locally. Independent research shows as many as 60% of people who downsize stay local. In fact, 36% of people who downsize do so in the same postcode, while another 24% live within a nine kilometre radius of their former home.

Government incentives to move now

The government is encouraging people to downsize too. Changes to the superannuation laws introduced in 2018 and modified last year mean people over 55 who sell the family home can put up to $300,000 into their super tax-free (that’s $600,000 for a couple).

The Australian Financial Review recently reported around 60,000 downsizers had taken advantage of this scheme nationally, pumping $14.5 billion into their super funds.

But even without this significant government incentive, downsizing is becoming a more attractive, even urgent, requirement for many locals – and not only those who want to free up cash for retirement.

Many downsizers no longer want to be responsible for the maintenance and upkeep of a large home. Some feel that, with the kids grown up or left home, they now have too much room in their homes. And most want to be closer to the action – driving less, catching more public transport, and taking advantage of the restaurants, cafes, parks, beaches and lifestyle that make Sydney’s eastern suburbs such a desirable place to live.

That said, not all downsizers are empty nesters close to retirement age. An increasing number of locals are choosing to move out of a suburban home and into the convenience of an apartment or townhouse at a much earlier stage of their lives – often when the kids are in high school.

And not all are locals – we see a large number of downsizers coming from other parts of Sydney, interstate and even overseas.

Lack of downsizer properties an issue

While downsizing is becoming both more popular and more encouraged, the main obstacle is that there are far too few homes that suit the criteria of downsizers.

After all, many have very different – and more discerning – requirements compared to people who moved out of the family home in the past.

Many compete for terrace houses in Paddington. Others like modern townhouses, or larger apartments.

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One thing we’ve noticed almost all downsizers want (other than convenience) is space. Traditional one and two bedroom flats don’t cut it. They’re often after three- or four-bedroom apartments (including penthouses and sub-penthouses) and townhouses. Many even want the resort-style living such as pools, gyms, outdoor entertaining spaces and more. They also want privacy.

And, while we are seeing more of this type of luxury boutique development come online – especially with the conversion of hotels and office blocks – so far this has been a drop in the ocean.

The economics of developing for downsizers

One key reason for this is economic. Before committing to a project, developers usually need to be confident they stand a good chance of making a profit. And, while there’s little doubt any apartments built for downsizers will get sold, the high price of land means it’s often more attractive to build smaller apartments in greater numbers than build a boutique development for downsizers.

Another key reason is that there just isn’t enough land available, full stop. Most of what can be built on in our part of the world has already been built on. And, with smaller block sizes than many parts of the city, there just aren’t a lot of large sites that can be developed around here.

Wider implications for the property market

A lack of appropriate downsizer stock is playing a real part in pushing Sydney’s property market to its record highs.

Anything that does come to market is in strong demand, which drives prices higher. For instance, in Woollahra, the median three bedroom apartment price has grown at more than double the rate of the median two bedroom price since 2020, according to Domain.

But it’s not just driving prices higher for homes favoured by downsizers. It’s also fuelling growth in their own house prices.

Many downsizers who would like to move on find that they can’t – there isn’t anywhere they want to move into. So, when they don’t put their home on the market, the pool of family homes available dwindles. This means demand outstrips supply in family homes, and values here go upwards too.

When the person upgrading to a family home can’t buy, they then hold onto their property for longer – and low supply becomes self perpetuating. In fact, the average hold time for a Sydney house (around 10 years) is now almost double what it was two decades ago.

In short…

A lack of downsizer-appropriate stock is impacting the broader market, encouraging people to stay where they are rather than move, and slowing down the natural turnover of properties. Although government incentives for downsizers , these aren’t really impacting the supply side of the equation – only encouraging further demand.

Until we come up with a plan not just to build homes, but a solution to build the types of home in demand, the problem will always persist.

Want more?

If you’re interested in buying or selling in Sydney’s Eastern suburbs, get in touch.