How quickly people form bigger households and take demand off the rental market remains an open question in the battle against red-hot inflation.
Reserve Bank head Philip Lowe remains worried about dynamics in the rental market that are driving up prices and could complicate the task of bringing inflation back to target.
The governor used an appearance at a Senate committee to explain there were two major factors pushing up demand for rentals – people taking up more space during the pandemic and the population boom since borders reopened.
Dr Lowe said new supply would ease cost pressures but would take time to come online and in the short term, the primary way rents would fall was through denser households.
By that, he meant rising rents would likely keep adult children living at home for longer and nudge people to bring in a housemate.
The latest statement of monetary policy from the central bank suggested average household size had been increasing in recent months.
CoreLogic head of research Eliza Owen said there was evidence of demand pressures cooling off in regional markets but capital city markets were still well below pre-pandemic levels.
Ms Owen told AAP high wages growth and the strong labour market may be helping wealthier households hold on to their larger rentals.
Plus, people were often reluctant to downsize, which she said may help explain the persistence of low household size even as rents were surging.
“But as cost of living pressures increase and the labour market loosens in the year ahead, we may see people with no choice but to start renting out spare rooms, or moving out of one-bedroom dwellings,” she explained.
The Demographics Group director Simon Kuestenmacher said the number of people per dwelling had been trending down for some time.
“We do have quite a few spare bedrooms in the country,” he told AAP.
The demographer said one way people were already adapting to price pressures was by staying with their parents for longer.
But Mr Kuestenmacher said this was not an option for all groups, including first-generation migrants.
Another factor weighing on the average household per dwelling is longer lifespans.
Now that people are living longer, Mr Kuestenmacher said there were a lot of older couples and widows living in three or four-bedroom homes.
While he stressed people had a right to age in the homes of their choosing, he expects governments to start introducing more policies to incentivise downsizing.
Better Renting executive director Joel Dignam said it would be preferable not to be in a “scarcity situation” where people were forced to squeeze into homes by sky-high rents.
Ideally, there would be enough quality rentals in the appropriate locations to give people the choice to live alone or with housemates as preferred.
In addition, there was a demographic shift under way that had people renting until later in life and often share housing for longer.
“It can be challenging sharing a space with other people, especially once when people taste having extra space,” Mr Dignam said.
The head of the tenant advocacy organisation also said the onus was often on renters to adapt their lifestyles in the face of economic challenges.
While owner-occupiers were also experiencing price signals to rent out their spare rooms, he said tax exemptions incentivised owners to hang onto their big houses as a store of wealth.
Australian Associated Press