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A few home truths on people and houses

Jessica Brown and Oliver Marc Hartwich | The Age | 28 September 2011

STOP population growth, and solve the housing crisis. That's the simple mantra of the ''small Australia'' brigade. But what at first sounds like a straightforward proposition turns out to be based on bogus logic. Population size certainly plays a role in determining our housing needs. But it is by no means the only factor - let alone the decisive one.

The number of households in any country is determined by both the population and the average household size.

Household size depends on the age profile of a population. In an ageing society, even a stagnant population needs more houses. You only need to look at Europe's ageing population to see this effect in practice.

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Take the German city of Cologne. In 2000, Cologne had a resident population of 997,605. By 2009, this had moved only slightly higher to 999,035 - a minuscule increase. At the same time, the average household size declined from 1.94 to 1.88 individuals per household.

The main reason for the decline was population ageing. Elderly people are much more likely to live in single-person households. In 2000 only 15.4 per cent of the population of Cologne was 65 or older, but in 2009 their share stood at 18 per cent.

As a result of this demographic shift, Cologne needed to build more houses. In 2000, there were 518,530 dwellings. Nine years later this had increased to 537,666. To deal with a population increase of just 0.1 per cent over nine years, Cologne had to increase its dwelling stock by 3.7 per cent.

As the German population continues to age, this process will go on. In fact, Germany will need to build more homes even when its population falls. In the coming decades, Australia's experience will be the same.

Australia's median age is 37.7 years - much lower than Germany's 44.9 years. Australia is a relatively young country, and we have some way to go to catch up with other developed countries, such as Germany. But as this catch-up happens - and it will happen because Australians are getting older, too - we can expect strong demand for housing.

Australian households are still large by developed world standards. Currently, the average Australian household consists of about 2.5 persons.

But the extent to which Australia's population ages will determine how quickly household size declines. The faster Australia's population ages, the faster household sizes will shrink. If Australia remains a younger country, households will also remain relatively larger.

Interestingly, the two factors pushing up Australia's population - immigration and high fertility - are also keeping household sizes high.

Without children and migrants, the ageing effect on household size would be considerably stronger.

In the long run, it hardly makes a difference for total household numbers whether Australia continues its current migration intake or drastically cuts it.

If migration continued at present levels and fertility rates remained unchanged, we could expect a total number of households of about 15.9 million by 2050 - a massive increase on the current 8.5 million households.

But here comes the rub: even if we cut Australia's net migration intake by half, the total number of households will still rise to 14.6 million.

Australia's somewhat smaller population under low migration would be older and thus living in smaller households.

The conclusion policymakers should draw is simple. There is no point pretending that reducing Australia's future population growth (if that could be achieved at all) would absolve us from building more homes - or even take the pressure off to any significant extent.

A massive home building program will be necessary even if our population does not grow.

Even in the extremely unlikely event of a collapse of our fertility rate to European levels, a reduction in our net migration intake to zero and a much lower life expectancy than experts predict, Australia would end up with close to 12 million households by the middle of the century.

The message to Australia's politicians is clear. Stop discussing the pros and cons of a ''big'' or a ''sustainable'' Australia. Instead, build the houses that this country needs.

Jessica Brown and Oliver Marc Hartwich are research fellows at the Centre for Independent Studies. Their report Why a Growing Australia is Nothing to Fear is published by the CIS.