Smart home technologies can enable older adults, including those with dementia, to live more independently in their homes for a longer time. Activity recognition, in combination with anomaly detection, has shown the potential to recognise users' daily activities and detect deviations. However, activity recognition and anomaly detection are not sufficient, as they lack the capacity to capture the progression of patients' habits across the different stages of dementia. To achieve this, smart homes should be enabled to recognise patients' habits and changes in habits, including the loss of some habits. In this study, we first present an overview of the stages that characterise dementia, alongside real-world personas that depict users' behaviours at each stage. Then, we survey the state of the art on activity recognition in smart homes for older adults with dementia, including the literature that combines activity recognition and anomaly detection. We categorise the literature based on goals, stages of dementia, and targeted users. Finally, we justify the necessity for habit recognition in smart homes for older adults with dementia, and we discuss the research challenges related to its implementation.