Following recent interest rate hikes and the prospect of additional increases, housing affordability is likely to decline further, prompting many potential buyers to reconsider the types of homes they seek or their living arrangements.
In its most recent meeting, the RBA board lifted the cash rate by another 25 basis points, bringing interest rates to their highest level since December 2024.
For homeowners, this means that their mortgage repayments will increase by $118 over a month and $1415 over the year on a typically-priced home at a national level. For those looking to buy, loan amounts will be around 3% less under the same repayment conditions which will ultimately limit what buyers can afford, and will potentially reduce options for buyers.
While declining housing affordability has driven demand in the lower-end of the market, reflected in stronger price growth in the low-tier segment (5th-25th percentile) compared to the high-tier segment (75th-95th percentile), new data shows that the types of homes buyers are interested in may also be shifting.
Searches related to multi-living are up from a year ago
Analysis of keyword terms over the past year show a large uplift in searches for "granny flat", "self-contained" and "dual-living" when people are searching for homes
Compared to the previous 12 month period, granny flat was searched 35% more while searches for dual living and self-contained and were 22% and 19% higher.
Furthermore, national searches for granny flat during April 2026 were the highest they have been since 2022; dual living was close to record highs, and searches for self-contained are well above earlier levels, indicating a longer‑term upward trend.
Although search volumes don’t directly translate to sales, they indicate growing interest in homes with multiple self‑contained living spaces. This interest may be underpinned by several factors.
The first is the ability for additional self-contained spaces, like granny flats, to produce additional rental income. With interest rates expected to rise further and monthly repayments hovering at historical highs, properties with these features may be more attractive as they have the potential to offset these rising homeownership costs. Despite the upfront cost of these homes typically being higher, the added flexibility and potential financial benefits may outweigh this for some buyers.
Another factor could be the rise in the co-ownership of homes and greater consideration of multi-generational living, likely driven by affordability pressures. According to NAB home lending data there has been a 33% increase in family or friends joint-purchasing homes nationally. Homes with dual-living arrangements are well-suited for these scenarios as they allow for clearer separation of use and costs while also preserving flexibility around how the property is occupied.
Housing affordability pressures may be influencing the types of homes buyers search for, but they have also had an impact household formation and living arrangements.
Household sizes have remained fairly stable since the early 2000s
While household sizes have declined over the past century, they have remained relatively stable since the early 2000s. After falling sharply from 3.1 to 2.6 people per household between 1976 and 2001, average household size has edged down only marginally over the past 24 years, to around 2.5.
This stabilisation can be attributed to many potential factors, including broader demographic trends such as population ageing, a rise in multi-generational households and delayed household transitions.
The latter two are likely to be driven by the under supply of new housing and limited rental availability which has driven up costs of renting. However, the decline in housing affordability for buyers has been particularly influential, especially among younger people who tend to have lower incomes and fewer savings.
Research from Australian Institute of Family Studies (AIFS) shows that there has been an increase in the number of young adults living with their parents. Among those aged 20–24, 51% of men and 43% of women lived with their parents in 2021, up from 46% and 36% respectively in 2006. There was also an increased share of people aged between 15-19 and 25-29 years living with their parents over the same period.
How will housing preferences and structures evolve?
With financial markets predicting further interest rate hikes this year, following strong inflation from geopolitical conflicts, we expect demand for housing to soften and home prices to decline slightly as a result.
Recent policy changes on negative gearing and CGT may also contribute to this decline with Treasury estimates forecasting that price growth will slow by 2% over two years.
2026's Budget could weigh on the housing sector, with a shakeup in capital gains tax and negative gearing shifting sentiment. Picture: Hilary Wardhaugh/Getty Images
Despite the anticipated easing in home prices, housing affordability is still near record lows. This is likely to continue, given declines in borrowing capacity and housing supply remaining below government targets set for 2030.
While housing affordability pressures will shift buyer preference toward lower and middle segments of the market, we expect interest in homes that offer multi-living to increase further as people seek out options to offset the impending growth in mortgage costs, including co-ownership or multi-generational living.
The ABS projects that population ageing will continue which could increase the instances of adult children living with ageing parents and care-related co-residence. In addition, longer timeframes required to save for a deposit are expected to contribute to a further rise in the share of young adults living with their parents. Together, these trends are likely to reinforce the stabilisation of or even increase the average household size in the long-term.
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