The Marginal Cost of a Bedroom: An Australian Case Study

Abstract

After a long period of decline, a slight increase in household size in Australia has been observed in recent years. This reversal, in part, is due to a noticeable change in household formation patterns. An increase in multigenerational households and group living has been coupled with policy incentives aimed at reversing the decrease in fertility. In this paper, the results of a hedonic analysis of the cost of housing additional household members using Melbourne metropolitan sales data are presented. Specifically, estimates of the marginal price of an additional bedroom are discussed. The results show that the true cost of housing additional household members has increased substantially. Further, increasing marginal costs are evident for growing households, as captured by rising shadow prices for third, fourth and fifth bedrooms.

Keywords:

• hedonic analysis
• marginal cost
• bedroom
• multigenerational households