Over the past decade, growth in Australia’s housing stock has exceeded population growth. That’s a fact that’s difficult to reconcile with the broad consensus that Australia faces a crisis in supply. One of the factors often cited as a cause of the housing shortage is the decline in average household size. As some policymakers have suggested, if we could get more people to squeeze into homes, that would ease the housing crisis. If only it were that simple.
Average household size is a key driver of underlying housing demand, influenced by people’s preference for space, housing affordability and structural changes in household composition. Declining average household size could indicate that growth in housing supply has made it easier for people to live independently, such as by moving out of the parental home or a sharehouse. But it could also reflect longer-term demographic changes like declining fertility rates reducing family sizes.
So, what’s behind the decline in average household size?
Since the 1980s, Australia’s average household size has declined from over 2.8 in the 1980s to below 2.5 after the COVID-19 pandemic, with sharp decreases in the 1990s that eased in the 2000s.
The decline in average household size reflects more families living without children rather than more adults being able to afford to live with fewer people. In fact, the decrease in average household size has been primarily driven by a lower number of children per household.
The children-per-household metric has steadily fallen from 0.92 in the late 1980s to 0.59 in 2024. Adults per household has had relatively smaller shifts, declining from 1.96 in the late 1980s to all-time lows of 1.85 in 2003, before rising back to 1.92 by the end of 2024.
The main drivers of declining children per household are likely to be long-run demographic shifts, including an ageing population and declining fertility rates. Although rising housing costs could contribute to declining fertility, this is part of a broader global trend: while Australia has had some of the world’s largest housing price growth, many other developed countries have had similar declines in fertility despite vastly different housing markets. In line with global fertility trends, the decline in average household size has been widespread across the world with lower rates of children per household explaining most of the change.
Australia fits this global pattern. The decline in average household size has been driven by a steady drop in the number of children per household. As adults now make up a larger share of the population and typically have greater housing needs than children, the demand for housing per capita has increased. That means that even though Australia’s housing stock has grown faster than its population, it doesn’t necessarily indicate a housing surplus. It’s not only the size of the population that drives housing demand, but also its composition.
Headline statistics alone miss these underlying dynamics.
What’s next? This analysis builds on the RBA’s measure of average household size from the Longitudinal Labour Force Survey data. On top of this, e61 is developing a new suite of housing market indicators. By incorporating newly acquired rental microdata, we aim to construct indicators that reflect the multifaceted nature of housing markets. With these data, we can provide real-time granular insights into market conditions, allowing for analysis of vacancy rates, rental price movements, and tenant demand across different regions and property types. These metrics offer more direct measures of housing market tightness than demographic statistics alone.
