The common narrative that rising average household sizes, driven by worsening affordability, are easing housing demand offers some short-term comfort in addressing Australia’s growing demand/supply imbalance. However, a powerful countertrend is at work.
Australia’s ageing population is driving a long-term structural shift toward smaller household sizes. As the post-COVID “normalisation” in household size tapers and record net overseas migration inflows ease, a commensurate fall in underlying housing demand is unlikely.
The Role of Household Reference Person Ratios
Household demand is often best understood through household reference person ratios, which refers to the number of household reference persons (the main person responsible for the dwelling) in each age cohort relative to the total population in that cohort.
Younger adults in their twenties and early thirties have low ratios because many still live with parents or share rentals. Ratios rise sharply among those aged 35–49, reflecting coupling up and family formation, and climb further in older age groups as more people live alone or as couples without children. The steep step up from under-35s to those aged 35 and over reflects the transition to independent living and household establishment.
When household reference person ratios rise within an age group, it signals stronger household formation, or more people forming or maintaining their own dwellings, and thus a fall in the average household size. Over time, the combined movement of these ratios across all age groups determines the trajectory of national housing demand.
Affordability Cycles and Younger Household Formation
Over the long term, household formation has gradually declined, meaning fewer households are being formed per capita. Among younger adults, the decline reflects worsening affordability due to rising rents, escalating home prices, and delayed partnering or family formation. For older adults, similar falls stem from longer life expectancy and better health, which keep couples together longer and slow the transition to single person households. Some growth in multigenerational living may also influence the number of households being formed.
This declining trend was interrupted in the immediate post-COVID period. Record low interest rates, temporary rental softness, government income supports and a buoyant employment market significantly improved affordability. Many younger adults moved out of shared or parental homes to form new households, sharply lifting household ratios in 2021. Quantify estimates this led to a visible drop in average household size. from about 2.73 to 2.58 persons by 2023. This generated around 220,000 additional households more than if ratios had stayed at 2016 levels, despite lower population growth during border closures.
Ageing as the Dominant Structural Force
More recently, household formation is trending lower again, particularly among younger adults, as surging rents and higher interest rates have tightened affordability. Strong post-COVID migration, concentrated in low household-forming age groups, has reinforced this trend, lifting population more than household numbers and modestly increasing average household size.
However, overriding this, the dominant structural force shaping household formation will be demographic ageing. Two key shifts will define the 2025–2031 period:
Ageing Millennials entering their mid-30s to late-40s—cohorts that historically experience the largest increase in household growth as family formation accelerates.
Baby Boomers moving into the 75-plus age group—the highest-ratio segment, where most live alone or as couples without children.
Together, these movements will tilt Australia’s population toward age groups with higher household formation rates, offsetting the affordability-driven declines among younger cohorts. The result will be a stabilisation, or possibly a modest increase, in average household size, maintaining steady underlying housing demand even as population growth slows.
Quantify’s modelling suggests that while affordability challenges likely caused a short-term rise in household size since 2023 (ameliorating some of the effect of record net overseas migration), this will soon plateau. As migration eases and population growth slows, the influence of ageing cohorts with higher household ratios will again dominate, pushing household size back onto a gradual downward trend.
Hng Demand to Stay High
A smaller average household size means more dwellings are required to accommodate the same population.
Consequently, even as migration and population growth normalises, housing demand will remain elevated. Quantify projects household growth will average around 147,000 per year between 2026 and 2031. After factoring in demolitions (≈29,000 per year) and unoccupied or secondary dwellings (≈11,000 per year), Australia will need to complete about 187,000 new dwellings annually.
This appears achievable, being only slightly above the 175,000–180,000 built on average over each of the past five years.
However, the forecast is based on continued affordability pressures dampening household formation among younger adults enough to offset the upward demographic push from ageing and implies more upward pressure on rents and prices. Dwelling completions will need to be well over 200,000 per annum if we want to both accommodate the housing requirements of an ageing population, while also supplying sufficient dwellings to improve affordability for younger adults such that household formation for them is not delayed.
Quantify Strategic Insights undertakes population projections and housing demand and supply modeling both nationally and across all of the states. For more information, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]
