MARCH 19, 2019

When do you upsize and downsize your home?

Home ownership isn’t what it once was in Australia. The idea of the real estate market as a shifting landscape for individual buyers and vendors is a modern day phenomenon when compared to past decades. Even though ABS data shows that home ownership was at 67.1% in 2016 compared to 53.4% in 1947, Australia has seen this figure decline since its peak of 71.4% in 1966.

All manner of factors influenced the mentality of homeowners in previous decades, especially following WWII, where the turmoil of the first half of the 20th century fuelled a desire for stability within many nations, including Australia. Stability was prioritised to a point where many saw both economic and ideological value in remaining in the same house for decades.

Today, the average proportion of mortgage-to-income required to enter the market makes it a difficult way to initially grow wealth, but there is no doubting it is a more fluid market than it once was. One of the reasons the real estate market is so entwined with Australia’s economy is because of the way in which the market has been forced to act as a fluid market, despite homes being a traditionally difficult form of equity to quickly move. Incentives for investors have fuelled the use of property as a short term wealth generator, while other types of homeowners have seen the value in ‘climbing’ the ladder or using fluctuations in the market to their financial advantage.

Upsizing your home and downsizing your home can play this role of generating wealth, but it is also used by those who want to diversify their equity into different asset classes and who may have shifting lifestyle priorities.

Here are some key moments where you may want to consider upsizing or downsizing your home.

Upsizing you home

A growing household 

The most obvious time to upsize your home is when your household starts to increase in size. If you do plan on having children, it may be worth understanding where the market is likely to lie when it comes time for you to upsize your home. Read up as much as you can on the market and the economy for years in advance to understand that if you want to upsize your home to accommodate two kids entering their teenage years, you may be better of buying your new home a year or two in advance.

As a wealth generator 

Upsizing your home is the most effective way to compound your capital gains, as it presumably allows you to invest in more of what drives the real estate market and the wider economy in many respects: land. If your first home was a two bedroom apartment, being able to invest in a detached home will allow you to reap the longterm capital gains that come with owning land. This is the reason why apartments are often a more stable but less impactful generator of capital growth, as you do not own the land but the apartment.

Co-owning a home

The 2016 Australian Census revealed that multiple family households had increased from .7% of the population in 2001 to 1.9% of the population. This may still be a drop in the ocean compared to the 69.4% of homes that have a single family living in them, but this latter figure is dropping (down from 74.7% in 1991), which reveals that families are seeing new opportunities to upsize their home in unison with friends or family.

Not only do you enjoy the financial benefits of buying a home with friends or family, but you also enjoy the benefits to your mental health that come with having regular exposure to a mini-community within your home. More people are becoming aware of how important communities are in maintaining mental health, and couple this with the growing unaffordability of buying a home for some Australians, you can see why multi-family homes are increasing in number.

Downsizing your home

Downsizing your home often comes at a time in your life when you are consolidating and/or shifting your financial priorities. It does not mean you are necessarily compromising your savings goals, but instead shifting them or prioritising different aspects of your life over financial growth. These times in your life may include…

Preparation for children

It may seem counterintuitive to downsize your home when having children, but certain perceived sacrifices in terms of lifestyle may result in you being able to enter a higher bracket of the market closer to the city and/or have access to more schooling options than if you remained in a larger home further out of a city.

There is an increasing awareness of just how new the idea of solitary sleep is for children, so if you are placing yourself in potential financial stress, are locking yourself out of greater longterm capital gains, or minimising access to schooling because you believe your children need their own bedrooms, you may want to consider whether you are also impacting their mental health.

Post-children and retirement

If you have had a larger home for your family and have finally come to the point in your life where you are an ’empty nester’, you have reached the most common point when people decide to downsize their home. Selling your home helps provide your home to a younger family who may require an extra bedroom, while it also provides you more opportunities to diversify your wealth and open up equity in anticipation for a shift in your lifestyle, away from child rearing.

Retirement is the other key time in a homeowner’s lifetime where downsizing is most common. This helps you open up equity for aged care and health cover, as well as providing you the opportunity to create short term wealth by investing in higher-yield property and enjoying the benefits of maintaining one or two smaller homes.


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