Micro-units: problem or solution?

Housing is a fundamental need, so much so that it was included alongside food, clothing and medical care in the Universal Declaration of Human Rights. In the years since this document was written, the world has experienced both rapid population growth and urbanisation. Greater Melbourne’s population for example has grown by half a million in the last 10 years alone, to 4 million individuals today, with the inner city doubling in size.[1] This change has led to rising housing costs, with increases in rental and mortgage costs exceeding income growth by 150% and 176% respectively and outpacing inflation by 213% and 250% respectively.[2] The City of Melbourne’s 2013 Future Living report estimates that affordability of housing in the city now impacts households with incomes of up to $100,000 per year and leaves rent burdened some 50% of renters.[3]

The last 25 years have also seen a change in the demographics of homeowners and renters. Solo dwellings, once outliers, are for some age groups increasingly becoming the norm. They are especially popular with the 25–34 year olds who have chosen not to start, or have yet to start, a family. This group prioritises an urban lifestyle, with no car and no roommates, all at an affordable cost of living. Due to increased population and different demand, affordability has become increasingly rare. According to the Grattan Institute, Melbourne is experiencing a serious mismatch between available housing and housing demanded.[4]

To fill the gap between supply and demand of solo dwellings, developers in highly urbanised cities have introduced the micro-unit. Micro-units are small, generally one or two room units, which include a kitchenette and a small separate washroom. In most cities the minimum size for such dwellings is 50 square metres. In Melbourne, new solo dwellings must be greater than 37 square metres. In comparative terms, this is less than three city parking spaces. In refurbished buildings where these minimums do not apply, units as small as 15 square metres have been put on the Melbourne market.

Of all new housing built in Melbourne since 2006, 93% have been apartment buildings. In these, 40% of units built are micro-units with an average size of 44 square  metres. While these apartments have lower price tags than larger units, in some cases of just over $300,000,[5] they are not necessarily more affordable for individual consumers. Many find it difficult to obtain financing without significant down payments due to the reluctance of financial institutions to lend for such small spaces. Even if individuals can find lenders, mortgage insurers generally will not service loans for properties smaller than 50 square  metres. Out of all new micro-units built in Melbourne since 2006, only an estimated 15% are owner occupied.[6]

The greatest market for these units has comprised developers and investors who see them as an attractive commodity. Although the rent for these units is smaller than a typical apartment, they do give a higher profit per square footage. The critical issue that arises is that the needs of a developer and investor are significantly different than that of an owner or renter. Due to the small nature of micro-units, proper design is needed to ensure adequate storage, washroom facilities, kitchen facilities, lighting, ventilation, noise restraints and layout. Although Melbourne like most jurisdictions has minimum size requirements, no design requirements exist. New apartment specifications in Victoria are governed by the Building Code of Australia (BCA) which was not written for high-density dwellings such as these units.

Lenient requirements and investor driven demand has resulted in free market economics driving micro-units design. Discrepancy exists between adequate housing standards and actual living conditions. Since 2006, only 16% of units developed scored as ‘good quality’; 48% scored as ‘average’; the rest scored as ‘poor’.[7] Taller buildings scored significantly lower. Small and poor apartment design can lead to psychological problems, health problems and other difficulties. Units of this size often cannot accommodate regular size furniture and may need to be reconfigured several times a day for utility purposes. Comfort is often forgone, design inconvenience is adopted and crowding-related stress can arise. According to Dan Kopec, director of design for human health at Boston Architectural College, this can lead to increases in claustrophobia, domestic violence and substance abuse.[8]

Rational thought would suggest that individuals freely choose to rent or buy these units. They prefer this trade-off of space for place which allows them to live in certain areas otherwise inaccessible to their budget. Experience with small units in other cities, however, has shown that for some these units are the only viable alternative. Moreover units in New York and San Francisco, for example, which were originally designed for sole or dual occupancy, now often illegally cater to family or flatmate groups of 3 or 4 individuals. Low cost units are also more likely to be left to deteriorate, due to the lower rent return they bring in.

The fears and the issues that may arise from micro-units are valid. With the dramatic increase in the number of these units built and yet to be built in Melbourne, these issues will become a growing concern. Micro-units do fill a demand in the market created by change in demographic requirements and population increases. They may help solve part of the current housing mismatch in Melbourne. These units, though, should not be seen as a permanent solution to housing shortage. What may work for an individual in their 20s may not be adequate for him/her in their 30s and 40s nor for a family. When designed right they could be an affordable alternative for many individuals. If not though, Melbourne and other big cities may be creating areas of investor driven urban slums.

References

[1] City of Melbourne, 2013, Future Living, Melbourne, p.11.

[2] Ibid p.32.

[3] Ibid. Rent burdened refers to individuals who spend more than 30% of their take home income on rental costs.

[4] Kelly, J-F, Breadon, P and Reichl, J, 2011, Getting the housing we want, Grattan Institute, Melbourne.

[5] http://www.afr.com/p/property/small_apartments_big_headaches_n4oIdB8rugS9l4Rbn5oTAL

[6] Birrel B, Healy E, Rapson V and Smith T.F, 2012. The End of Affordable Housing in Melbourne? Centre for Population and Urban Research Monash University, Melbourne, p.45.

[7] Birrel B & Healy E, 2013. Melbourne’s High Rise Apartment Boom. Centre for Population and Urban Research Monash University, Melbourne, p.30.

[8] http://www.theatlantic.com/health/archive/2013/12/the-health-risks-of-small-apartments/282150/