How scarce is the product you want?

Last week I met with a lovely couple who are struggling to find a well-located, nicely renovated, four-bedroom home in Yarraville. They said they’d been searching for many months and the right house just hadn’t come along.

I explained to them, “Many inner-ring suburbs in Melbourne, particularly in the inner-north and inner-west are problematic for people who are searching for a perfectly renovated, four-bedroom home. Firstly, we usually find that families who command four bedrooms also want a second living area, an ensuite and a yard. That translates to a big block.

They aren’t on their own. We get this all the time.

“We just didn’t make the blocks that big back at the turn of the century in these locations. They were working class and most of the local families in 1900 lived in little single-fronted, Victorian or Edwardian cottages, most of which only had two bedrooms on offer. These areas were not a bustling coffee-precinct boasting strong household incomes back then.

“These suburbs were poor back when they were subdivided.”

So to take an old village in an inner-ring location that was once a working-class suburb and then ask it to offer Camberwell-style family homes is asking too much. Renovators have the challenge of not only dealing with a tighter internal space and limited land size, but so many also have to work around heritage overlays and controls. The little cottages that were once working-class terraces and weatherboard single-fronts are now cherished gems that often adorn streets in a neat row as shown below.

These days, parents with two children hold a four bedroom house with a yard as the ideal.

The market impact of such a deficit in a popular product is interesting.

The scarcity of three bedroom homes with generous yard is notable, but once the fourth bedroom is added to the wish-list, it becomes abundantly clear that the incremental cost of bedrooms is hefty.

Take this gorgeous home in Yarraville as a perfect example. It was auctioned only yesterday and surprised a few, but it didn’t shock us. It presents beautifully with a sun-filled lounge area, north facing yard, superbly laid out living area and four genuine bedrooms. It’s essentially everything a family could dial up, with the exception of location.

The proximity to one of the inner-west’s busiest intersections, combined with the truck road noise tainted some buyers’ willingness to compete for this gem despite the house being near-perfect.

But people vote with their bidding, and six bidders determined that the market value of this home sat at $1.37M. Quoted at $1.15-1.25M, auction day was no doubt a day of celebrating for the vendors.

I’ve often prompted 2-child families to consider the impact of chasing a four-bedroom home in what is otherwise a two and three-bedroom postcode. If the extra bedroom is purely a spare room for guests, I do ask them to weigh up the cost-benefits of their ‘spare room’ decision.

How often do you have guests staying?

How much would it cost you to put them up in a hotel in town? Or join them in town?

The positive side of the coin is the resale value. People’s ideals aren’t changing and these beautiful, big homes in old, gentrified pockets continue to fare well when it comes to capital growth. But the entry costs have to be weighed up.

Could have today’s buyers traded down one bedroom to a three-bedroom home and targeted a location closer to the village, where amenity is improved and traffic noise is diminished?

It’s all about compromise, but it’s important to remember that a fourth bedroom is the most expensive room in the house in these suburbs.