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The Hidden Economics of Spare Bedrooms
Housing
Nenad Petrovic
Senior Demographics Consultant
Key points
- Room underutilisation is not marginal. It’s a defining feature of the Australian housing system.
- There are around 13 million ‘spare’ bedrooms in Australia. Around three quarters of Australian households have more bedrooms than they need for typical sleeping arrangements.
- Since 2016, housing supply has tilted ever further towards larger homes, even as household sizes have trended smaller and solo households have increased in number.
- Underutilisation is concentrated among older, owner-occupied households in established areas - while lone adults and small households are increasingly priced out of those same locations.
- Spare bedrooms aren’t persisting because the people in bigger homes aren’t willing to downsize. Transaction costs, risk, lack of suitable local options and ‘non-market’ values all keep people in place, even if they’d otherwise be open to downsizing.
- Policies that support more diverse housing in established areas - like lower downsizing frictions, gentle density and supported home share - are more promising than trying to ‘force’ downsizing. We share some examples below.
The Hidden Economics of Spare Bedrooms
Spare bedrooms aren’t simply unused space. They’re a signal of how well our housing system helps households adapt over time.
Across Australia, debates about housing affordability usually focus on how many new homes we need. Sitting quietly in the background is a different issue: millions of spare bedrooms inside homes we already have, even as many households struggle to find affordable, well-located housing.
Understanding this mismatch matters. It shapes who can live where, how communities function and how efficiently our cities and regions grow.
Spare bedrooms are not spread evenly. They are concentrated in older, owner-occupied households in established areas, where downsizing options are limited and the risks of moving are high. At the same time, the fastest-growing household types - lone adults and smaller households - are increasingly priced out of those same neighbourhoods.
The result is a misalignment between the housing stock we have and the housing many people need. This misalignment affects affordability, urban efficiency and social connection.
This article explores the ‘hidden economics’ behind that pattern:
- how demographics, household structure and dwelling form interact to create spare bedrooms
- why freeing up that space is harder than it sounds, and
- what realistic policy levers exist to better match people and housing over time.
Australia Already Has Housing Capacity - Just Not Where It’s Needed.
Spare bedrooms represent significant capacity in the housing system, but that capacity is uneven and hard to unlock. Put simply, there gap between the homes being built and the way Australians increasingly live is getting wider.
- In 2021, 74% of Australian households had at least one spare bedroom, while only 3% needed more.
- Since 2016, the share of households with spare bedrooms has risen, while the share needing extra space has fallen.
- Over the same period, housing supply has tilted further towards larger homes: more than 418,000 additional four-bedroom dwellings were added nationwide.
- And yet, lone-person households grew strongly over the same period of time.
Research from the Australian Housing and Urban Research Institute estimates that around three quarters of households occupy homes with more bedrooms than they need for standard sleeping arrangements – roughly 13 million unused bedrooms across the country.
Housing capacity is more pronounced in the regions than cities
Housing underutilisation is generally more pronounced in regional Australia than in the capitals. In 2021, around half of households in regional Western Australia, South Australia and Victoria had two or more spare bedrooms.
- Across all regional areas, nearly half of households had two or more spare rooms, compared with about 40% in Greater Capital Cities.
- Regional Northern Territory stands out: only around a quarter of households have spare bedrooms, while about one in ten need two or more extra bedrooms, reflecting younger populations, larger households and more constrained supply.
In the major cities, underutilisation also varies:
- Greater Perth has the highest share of households with two or more spare bedrooms (just over one in two), followed by Greater Brisbane and Canberra.
- Greater Sydney and Greater Darwin have the lowest rates of underutilisation, with about one in three households having two or more spare bedrooms.
Housing Underutilisation in Australia's Regions - by State
| Regional Area | Proportion of households with 2+ bedrooms spare (2021) | Change since 2016 |
|---|---|---|
| Regional Western Australia | 52.5% | +2.1% |
| Regional South Australia | 52.3% | +2.4% |
| Regional Victoria | 50.4% | +3.5% |
| Regional New South Wales | 48.1% | +2.6% |
| Regional Queensland | 46.5% | +1.9% |
| Regional Tasmania | 45.2% | +1.4% |
| Regional Northern Territory | 24.8% | +1.1% |
Source: Australian Bureau of Statistics.
Housing underutilisation is more pronounced in regional Australia than in Greater Capital Cities. In 2021, 48% of households in Regional Australia had two or more spare bedrooms, compared with 40% of households in Greater Capital Cities. This reflects differences in demographic structure, housing stock and market conditions between regions and major cities.
A Key Difference is Dwelling Diversity
Where there is a greater mix of dwelling types, spare capacity tends to be less extreme.
- In Greater Sydney, almost half of all dwellings are medium or high density.
- In Greater Perth and Greater Brisbane, that share sits closer to a quarter.
- Greater Darwin also has a relatively diverse housing stock and a younger population, which helps keep underutilisation lower.
Housing Underutilisation in Australia's Capital Cities - by State
| Greater Capital City | Proportion of households with 2+ bedrooms spare (2021) | Change since 2016 |
|---|---|---|
| Greater Perth | 50.6% | +1.4% |
| Greater Brisbane | 45.5% | +2.0% |
| Canberra | 42.5% | -1.2% |
| Greater Adelaide | 42.1% | +2.1% |
| Greater Hobart | 39.6% | +0.3% |
| Greater Melbourne | 37.9% | +3.0% |
| Greater Darwin | 34.3% | +2.3% |
| Greater Sydney | 33.4% | +2.3% |
What Counts As a ‘Spare Bedroom’ – And Why It Matters
It’s easy to imagine all these bedrooms as unused. But a ‘spare bedroom’ is not the same thing as an ‘unused bedroom’. A household can get a lot of use out of a ‘spare’ room.
Having one additional bedroom is often a normal, functional part of housing use. It can provide a home office, a place for visiting family or carers, room for temporary care needs, and flexible space as circumstances change. Research shows that spare bedrooms frequently support ageing in place, care, work and family connection, particularly among older homeowners. In that context, they are less ‘surplus space’ and more household resilience.
The real signal of underutilisation appears when households have two or more spare bedrooms that are not needed over the longer term.
Underutilisation emerges when multiple rooms remain unused relative to longer-term household needs. This distinction matters for how we assess housing suitability and design policy responses.
Earlier analysis of overcrowding in a Sydney local government area found that housing suitability is best understood at the intersection of household type and dwelling type, rather than bedroom counts alone.
For example:
- Couples with children are far more likely to have spare bedrooms when they live in separate houses than in medium- or high-density dwellings.
- Couples without children - including younger couples and older ‘empty nesters’ - show very high levels of underutilisation in separate houses, but much lower rates in medium-density housing.
- Lone-person households, which now account for around a quarter of all households and are the fastest-growing household type, have some of the highest underutilisation rates. About three quarters of lone-person households in separate houses occupy dwellings with three or more bedrooms.
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Couple With Children Households: Overcrowding vs Underutilisation
| Dwelling type | Proportion of overcrowded households | Proportion of underutilised households |
|---|---|---|
| Separate house | 1.4% | 3.4% |
| Medium-density | 3.7% | 0.7% |
| High density | 10.5% | 0.0% |
Couple Without Children Households: Overcrowding vs Underutilisation
| Dwelling type | Proportion of overcrowded households | Proportion of underutilised households |
|---|---|---|
| Separate house | 0.1% | 37.8% |
| Medium-density | 0.2% | 6.2% |
| High density | 0.7% | 0.6% |
Taken together, these patterns highlight that dwelling form and household structure interact in really important ways. Spare bedrooms are not inherently inefficient; they become problematic when the housing stock and household needs drift out of alignment.
Predictable Life Changes Meet Inflexible Housing Stock
The mismatch between household needs and housing supply is driven by demographic change over time. In effect, underutilisation is less about individual choice and more about predictable life-course change meeting a relatively inflexible housing stock.
Most homes are built with families in mind. But households move through a series of life stages, often without changing address. Household size peaks during the years when children are at home. Over time, children leave, relationships change or partners pass away. The dwelling remains the same size, but the household shrinks.
The result is a growing gap between the space households need and the space they occupy, particularly in later life.
Census data reflects this:
- The fastest-growing household types are lone-person households and couples without children.
- These groups are more likely to be living in homes originally designed for larger families, especially detached houses.
- Recent housing supply has continued to favour larger dwellings, intensifying the structural lag between household size and dwelling size.
- Once households occupy underutilised homes, particularly owner-occupied separate houses, they often remain there for long periods.
Lone Person Households: Overcrowding vs Underutilisation
| Dwelling type | Proportion of overcrowded households | Proportion of underutilised households |
|---|---|---|
| Separate house | n/a | 76.2% |
| Medium-density | n/a | 25.1% |
| High density | n/a | 6.9% |
How Tenure, Age and Dwelling Type Shape Housing Fit
Underutilisation is not spread evenly across the population. It clusters around certain tenures, ages and dwelling types.
Tenure and age:
Home owners, especially older households, are more likely to live in underutilised dwellings. Their housing decisions are shaped by risk, attachment to place and care needs, not just price.
Renters, often younger households, tend to live in dwellings that more closely match their current size, because renting allows more frequent moves. This flexibility comes at a cost - higher insecurity and greater exposure to crowding.
In practice, housing suitability by tenure is another lens on the life course. Right-sizing often occurs late and by necessity, triggered by health or care needs rather than proactive planning.
Dwelling Type and Long-Term Fit
- Detached housing is most prone to underutilisation as households move through later life stages.
- Medium-density housing – such as townhouses and low-rise apartments – tends to offer a better balance of efficiency and adaptability across life stages.
- High-density housing can reduce underutilisation but may increase crowding risk if not well matched to household needs.
No single dwelling type solves the problem. A healthy housing system depends on a diverse mix of dwelling forms that can support people as their circumstances shift.
Over time, the accumulation of individual decisions leads to a system-wide pattern:
- Established suburbs with ageing populations and large homes accumulate spare bedrooms.
- Younger adults and growing families are pushed towards newer suburbs or denser housing, often further from jobs, services and social infrastructure.
The system ends up with significant latent capacity, but access to that capacity is blocked by demographic realities, tenure patterns and market structures.
The Hidden Costs of Downsizing: Why is it Rare?
On the surface, the solution seems straightforward: if there are millions of spare bedrooms, why don’t more households downsize?
In practice, several economic and non-economic factors make this ‘obvious solution’ hard to realise. Taken together, these factors mean that unlocking spare bedrooms is not primarily a behavioural challenge. It is a structural issue rooted in how we tax, plan and design housing, and how we manage risk across the life course.
- Transaction costs
For owner-occupiers, particularly older households, moving can be expensive: stamp duty, agent and legal fees, and moving and fit-out costs add up. In addition, cash assets are assessable for the old age pension, where a person’s principal place of residence is not.
These costs can erode the financial benefits of downsizing. For households that own outright, the absence of mortgage stress further reduces the incentive to move.
- Risk and uncertainty
Downsizing can introduce new risks:
- The risk of moving from ownership into the private rental market
- exposure to rent increases and shorter leases
- losing proximity to established care and support networks.
ABS data shows renters face higher housing cost stress and greater exposure to involuntary moves. For many older households, tenure security is worth more than a better bedroom fit. Spare bedrooms can feel like insurance against future uncertainty.
- Limited local options
In many established areas - where underutilisation is most pronounced - there is a shortage of smaller, accessible dwellings, and homes close to services, transport and community ties.
Even when households would like to right-size, they often cannot find suitable options in their local area. Underutilisation persists not because people refuse to move, but because realistic alternatives are missing.
- Non-market value of space
Spare bedrooms also carry non-market value - that is, value beyond money. They often support ageing in place, live-in or visiting carers, working from home or hosting children, grandchildren or other family.
These roles make extra rooms part of household resilience. Underutilisation is only visible when multiple rooms remain unused over the long term.
What Releasing Spare Bedrooms Can - And Can’t - Do For The Housing Crisis
Given the scale of underutilisation, what could better use of spare bedrooms realistically achieve? What could actually work?
Realistic benefits
In the short term, better matching households to existing housing can:
- ease pressure for renters and vulnerable households, particularly in established areas
- offer income and social connection to older homeowners
- open up access to well-located communities for younger adults who would otherwise be priced out.
Examples such as older residents renting out spare rooms show how intergenerational homeshare can deliver mutual benefit: extra income and company for hosts, and affordable, well-located accommodation for tenants.
Research using 2021 Census data suggests that even mobilising a small share of unused bedrooms could expand effective housing capacity in the short term, without waiting for new construction.
Clear limits
Ultimately, spare bedrooms are part of the solution - not the solution on their own. Spare bedrooms are not a substitute for building more homes where they are needed.
- Many underutilised rooms are in separate houses outside high-growth corridors or far from key jobs and services.
- Even widespread take-up of spare room rentals would not remove the need for new family housing, more medium-density dwellings or additional social and affordable housing.
- Better use of existing bedrooms does not solve deeper issues around tenure security, dwelling diversity and life-course transitions.
Policy Levers and ‘Soft’ Approaches
If spare bedrooms are to play a constructive role, policy responses need to work with household behaviour, not against it. The evidence points to levers that enable choice, reduce risk and cost, and expand safe, local options.
Key directions include:
- More diverse, smaller dwellings in established areas
Increasing the supply of well-located, liveable smaller dwellings:
- allows older households to right-size without leaving their community and support networks
- supports younger and smaller households to live closer to jobs and services
- requires a focus on accessibility, adaptability and quality, not just size.
Without this, downsizing remains more aspiration than reality. Examples include NSW’s Low and Mid-Rise Housing Policy and Victoria’s activity centre and “gentle density” reforms.
NSW’s policy enables terraces, townhouses and small apartment buildings in selected areas near transport and local centres, with the explicit aim of increasing ‘missing middle’ housing in established suburbs.
Similarly, Victoria’s reforms encourage more medium-density development around activity centres to expand the supply of well-located, smaller dwellings and improve right-sizing options within existing communities.
- Reducing downsizing frictions
Reforms that lower the cost and complexity of moving - such as changes to stamp duty for older downsizers, or planning settings that enable more medium-density housing - can encourage gradual, voluntary transitions.
At the Commonwealth level, the downsizer super contribution allows eligible Australians aged 55 and over to contribute up to $300,000 from the sale of their home into superannuation, outside the usual contribution caps. This can reduce financial disincentives to sell a long-held family home, even though it does not directly subsidise a smaller purchase.
At the state level, targeted concessions also exist. In Victoria, eligible pensioners can receive stamp duty exemptions below specified thresholds, while Tasmania offers a 50% stamp duty discount for eligible pensioners who downsize.
- Gentle density and secondary dwellings
Secondary dwellings, dual occupancies and adaptable housing types can:
- allow households to release capacity while staying in place
- provide flexible options for family, carers or tenants
- add to local housing diversity without large-scale redevelopment.
In New South Wales, secondary dwellings are permitted in standard residential zones under the Housing SEPP, allowing most homeowners to add a self-contained unit on their lot, subject to development standards.
In Queensland, planning changes introduced in September 2022 removed occupancy restrictions, enabling secondary dwellings to be rented to anyone rather than only family members.
At the local level, councils such as Noosa have introduced incentives, including waiving infrastructure charges for secondary dwellings from mid-2025, reducing costs and encouraging their use for long-term rental or multigenerational living.
- Supported homeshare
Homeshare models, where spare bedrooms are rented out with appropriate safeguards, can deliver low-cost housing and social connection. Effective schemes:
- provide clear legal frameworks and support
- manage risk for both hosts and tenants
- ensure arrangements remain voluntary and mutually beneficial.
Several structured homeshare initiatives in Australia demonstrate how spare bedrooms can support safe, mutually beneficial living arrangements.
In Sydney, the NSW Home Share pilot matched older homeowners with younger adults seeking affordable accommodation, with screening and ongoing support provided through community organisations.
In Victoria, Life Shared connects older people needing support to live independently with compatible sharers in exchange for low-cost accommodation and agreed assistance. Local programs, such as the City of Stonnington’s Homeshare Program, also facilitate supported matches between older homeowners and volunteers, ensuring oversight and coordination.
Across these levers, the focus is not on ‘correcting’ household choices, but on designing a system that makes better choices easier.
Could Australia Reframe Spare Bedrooms as a Social Asset?
Spare bedrooms are often framed as inefficiency or excess. The evidence suggests a more nuanced picture. At the household level, additional space acts as private resilience. But at the system level, spare bedrooms are a significant but unevenly distributed resource. Their concentration in established areas, especially among older, owner-occupied households, reveals both opportunity and constraint.
Unlocking this capacity cannot rely on pressure or expectation alone. It depends on whether households are offered:
- safe ways to share space
- practical avenues to adapt or subdivide homes
- viable, local options to right-size without sacrificing security or belonging.
For planners, policymakers and the development sector, the key is to read spare bedrooms as a signal of alignment – or misalignment – between housing stock and demographic reality.
When policy and market responses focus on improving fit, reducing risk and expanding choice, spare bedrooms can shift from being a private buffer to a public asset, contributing to affordability, urban efficiency and more resilient communities over time.
(Interactive maps of suburbs with two or more spare bedrooms, and suburbs with high levels of unmet bedroom need, can be explored here: https://datawrapper.dwcdn.net/97Tzu/2/ and https://datawrapper.dwcdn.net/ifHJG/1/.)
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