Homeownership in Australia is changing. ABS data shows that homeownership reached its peak at 71.4% in 1966. This was up from 53.4% in 1947. In recent years homeownership has been on a slow decline reaching 67.1% in 2016.
There are many factors that influence homeownership. The Second World War had an enormous impact on the housing market. The turbulence of the first half of the century left people from across the globe with a need for stability. The result was that many people preferred to stay in the same home for decades.
In today’s world, it is difficult for people to enter that housing market at all, as the required mortgage to income proportion serves as a barrier to entry. This makes homeownership a difficult first step to wealth enhancement. The market is, however, more fluid than it was in the decades prior. This is despite the fact that property is a relatively slow equity mover.
Investment incentives have powered property into a tool for short term wealth creation. Other property owners have increased the wealth they derive from the property by moving up the property ladder or using market price movements to financial benefit.
By upsizing or downsizing your home you could generate wealth. Savvy investors also use this mechanism to spread their wealth into various asset classes. It is also an important way to change your living arrangements to fit in with changes in lifestyle requirements.
There are various times in your life when up or downsizing your home may be most appropriate.
Upsizing your home – A growing family
Probably one of the most appropriate times to upsize your home is when your family starts to outgrow it. If you have plans on growing your family, it is best to understand what market conditions are likely in the future so that you can plan for the day when you have to upsize. Study the market and the direction of the economy so that you fully understand your requirements and the likely costs when you have to house two or three teenagers. By understanding the market conditions, you may be able to aptly time your entry onto the market for a larger home under the best circumstances.
As a creator of wealth
One of the most effective ways to grow your wealth is to upsize your home. This is because when you upsize your home, you’re investing in land which is the power behind the growth in the property market and the economy as a whole.
The first property investment many people will make will be to buy an apartment. Moving up to a house on a free stand allows for long term investment in land, along with the likely gains in capital. Because you own no land when you buy an apartment the capital growth may be stable but it won’t have as big an impact as the capital growth on a freestanding property.
Co-ownership
Property co-ownership in Australia is on the rise. According to the Australian Census of 2016, the number of shared family households rose from 0.7% of the population to 1.9% between 2001 and 2016.
This is, of course, a very small number when compared to the number of single-family homes at 69.4% of the population. It is, however, a fact that single-family homes have declined off the 1991 peak of 74.7% as multiple family homes have increased.
Co-habitation comes with both financial advantages and the benefit of social exposure within your shared home. People are becoming increasingly aware of the importance of social communities in preserving emotional well-being. This, along with growing property prices has resulted in a growing trend for families to share a home.
Downsizing your home
Downsizing comes under consideration when it is time to start reprioritizing your lifestyle choices and financial objectives. This doesn’t mean that your long-term investment goals have changed but rather that there may be different aspects of your life that must take priority for a while. This may happen at the following crossroads of your life:
Planning a family
This may not seem like an obvious time to downsize, but parents are often willing to make lifestyle concessions in preparation for children. They may want to move from the outskirts of town to a property that is closer to the centre of town or suburb with a large number of educational options.
There is a growing awareness that solitary sleep can impact the mental health of children so many parents may put their children into single sleeping quarters and save themselves the financial stress of buying an unaffordable house, or one a long way from the best schools.
After the family moves
If you are now an empty-nester, you may have reached that time when you can put your large family house on the market and look for something smaller and more suited to your lifestyle. This is the when most people decide to downsize. Taking the step to sell your family home to buy something smaller will free up capital that you can use to diversify your portfolio and move onto the next step in your life
Retirement is the next crossroad where homeowners choose to downsize. Releasing equity in your home will allow you to put away money for health care and retirement funding. You may also decide to invest the finances released into another property with higher yields.