What’s behind Australia’s shrinking household size?

A new measure shows the size of the Australian household recently sank to historical lows - and COVID-19 was the catalyst.

Residz Team 4 min read

What’s behind Australia’s shrinking household size?

Let's dive into an intriguing topic today— the dramatic shrinking in the size of Australian households.

A new measure using data from the Australian Bureau of Statistics monthly Labour Force Survey (LFS) reveals how the COVID-19 pandemic has reshaped the dynamics of our homes, and we're here to explore the fascinating trends that have emerged during this transformative period.

Historical lows

According to the Reserve Bank of Australia’s “A New Measure of Average Household Size” written by Nalini Agarwal, James Bishop and Iris Day, the new measure shows the size of the Australian household recently sank to historical lows.

The average household size fell to just 2.48 individuals per household by August 2022, but lifted very slightly to 2.49 people per household in January 2023.

Now this isn’t just an intriguing trivia fact.

Smaller households are contributing to a sizeable increase in demand for homes in Australia. In fact even a 1% drop in household size potentially implies an increase of around 120,000 households, it says.

How the pandemic changed our average household size

When the pandemic struck, something interesting happened—household sizes across Australia began to grow.

According to the RBA article, between February and September 2020, average household sizes experienced a 2% increase, coinciding with widespread lockdown measures.

The spike in average household size can be attributed to some key factors. The share of one-person households fell by 2 percentage points, while households with three or four people saw a similar increase.

This shift likely resulted from young adults moving back in with their families, with the share of 18 to 30-year-olds living with their parents rising by 5 percentage points.

According to the RBA, these changes were driven by efforts to reduce housing expenses, adapt to online learning and work, and maintain social connections while adhering to social distancing guidelines.

The great reversal in average household size

However, the trend of increasing household size was short-lived.

In late 2020, a reversal occurred, leading to a decline in average household sizes over the next two years, reaching a historical low of 2.48 individuals per household by August 2022. So, what caused this shift?

Several factors contributed to this decline, say the authors of “A New Measure of Average Household Size.”

“Greater affordability, combined with changed preferences and strong income growth, likely encouraged individuals to form smaller households with more space per person over 2021 and 2022.”

Reasons to form a smaller household might have included:

More living space

The demand for more living space increased as people spent more time at home due to health restrictions and the rise of remote work. Perhaps people wanted to get out from under their parents’ and flatmates' feet, and we know they wanted home offices, home gyms, and personal space. As a result, many people formed smaller households to allocate more space per person.

Rental vacancies increased

The pandemic resulted in lower-than-expected population growth due to reduced net overseas migration and closed borders. Rental vacancy rates increased and rents declined, particularly in Sydney and Melbourne. Smaller households could form thanks to access to more affordable housing options.

Changing preferences

The pandemic prompted a shift in people's priorities and preferences when it came to their living arrangements. Many individuals reevaluated their lifestyles and desired more flexibility, convenience, and autonomy. Smaller households offer greater freedom and the ability to adapt quickly to changing circumstances.

Household size bigger in bigger cities

It seems the bigger the city the bigger the average household size.

The RBA says capital cities, on average, have larger households than regional Australia, likely reflecting higher housing costs.

It may also reflect compositional factors, it says.

“New households, such as those created by permanent arrivals from overseas, tend to be larger and more likely to settle in capital cities than regional areas due to the proximity to employment and education opportunities.”

However, the RBA shares that average household size in Sydney and Melbourne declined over 2022 and has remained around historical low levels, alongside a considerable tightening in rental market conditions in both cities (Agarwal, Gao and Garner 2023).

By contrast, there are some signs of AHS increasing or stabilising in some other capital cities, such as Brisbane, and regional areas, where rental markets have been tight for a longer period of time.

Average household size in future hard to predict

The RBA says the future of average household size (AHS) in Australia remains uncertain.

It says that while there has been a slight increase in AHS since late 2022, possibly due to rental market conditions, particularly in regional areas, many long-standing structural factors continue to shape smaller household formations.

Factors such as an ageing population, declining fertility and marriage rates, and higher household incomes still hold relevance today.

Many of the rites of passage for young people are changing, and it remains unclear whether the preference for additional living space will persist in the long term.

What we do know is that the COVID-19 pandemic brought about intriguing changes in household size in Australia. It’s now just a case of “watch this (living) space!”

Residz specialises in all sorts of research that can help renters, buyers and sellers find out information about property.

Photo by Julian Hochgesang on Unsplash