Empty Bedrooms Driving Australia’s Housing Crisis, RBA Warns

Australia’s housing crisis may not be fixed simply by building more homes. The Reserve Bank of Australia (RBA) has highlighted an overlooked issue contributing to rising property prices — the growing number of unused bedrooms across the nation.

RBA governor Michele Bullock said that smaller household sizes and under-utilised housing were now key factors fueling demand, even as the country struggles to meet its home-building targets.

Fewer People, Bigger Homes

During a recent parliamentary hearing, independent MP Allegra Spender asked the RBA if Australia’s housing supply was keeping up with demand.

Ms Bullock agreed that supply remained a major challenge, but added that the way Australians live within existing homes was equally important.

“Demand for housing is driven by new households being formed and the size of the household,” she explained. “We’ve had declining household size — that’s also a big driver.”

Research from Cotality supports this view, showing that single people and couples without children now make up 61% of households. The average number of people per home has dropped from 2.6 to 2.5 — a small change that means 4% more dwellings are needed to accommodate the same population.

Cotality’s head of research, Eliza Owen, said this shift reflected social and economic changes but also pointed to an inefficient use of housing stock.

“Empty nesters with more bedrooms than they need don’t pay land tax, and their family home isn’t counted in the pension asset test,” Ms Owen said. “Maybe it’s time to look at reviewing those incentives and encouraging downsizing.”

However, she acknowledged that asking older Australians to move out of long-term family homes was a difficult proposition.

Building More Homes Might Not Be Enough

The federal government’s 1.2-million-home target remains well short of what’s needed. Australia is already 40,000 new approvals behind schedule, and July’s data showed another decline in building approvals.

Even if the target is met, experts say that record construction alone won’t lower prices.

“We built a huge number of dwellings between 2014 and 2019 when rates were low and investors were active,” Ms Owen said. “But defects were common, and it didn’t improve affordability.”

Australia’s Official Cash Rate

Despite concerns, the RBA believes that interest rate cuts and government buyer incentives are not driving long-term price increases.

RBA assistant governor Brad Jones noted that while such schemes may add short-term demand, they will likely encourage new housing supply in the medium term, balancing the market.

“At the very margin, you may see a little more upward pressure on prices in the short term,” he said, “but as supply responds, the effect will be dampened over time.”