The latest Rental Affordability Index report tells us what we all know to be true: renting in Australia is at crisis levels with homes increasingly unaffordable for Aussies on average incomes.
Published annually by SGS Economics and Planning, National Shelter, Brotherhood of St Laurence, and Beyond Bank, the 2023 index shows that rental affordability has gotten worse over the past year in almost every major city and region. The only two outliers here are Canberra and Hobart.
The findings show that there are little to no affordable options for vulnerable renters in Australia, including pensioners and single parents.
Why Is Rent So Expensive in Australia?
Rental unaffordability has been climbing over the past three decades, but recent trends have exacerbated the issue.
Just four years ago, before the pandemic, 42% of all low-income households were in rental stress. In 2008, that figure was 35%.
Housing demand spiked in regional areas during the COVID-19 pandemic as people moved out of cities, putting greater pressure on vacancies across the country. As a result, the rental crisis is not limited to major metropolitan areas but is now a nationwide problem.
“Unaffordability has spread from the cities well into the regions,” Ellen Witte, Principal and Partner at SGS Economics and Planning and lead author and analyst of the report has said.
“Households will have to live further away from where the jobs are to access affordable rents, and businesses are struggling to find workers”.
The report states that the proportion of households renting increased from 26% in 1995 to 31% in 2020. Over the same period, the number of public housing tenants halved from 5.5% to 2.9%.
The introduction of capital gains tax in 1999, combined with negative gearing, has turned housing into a boon for investors who compete with renters, the report states. This has trapped more people in the rental market and driven house prices up. Interest rate rises, cost of living pressures, and widening inequality have compounded the problem.
Where Can You Find Cheap Rent In Australia?
Well, pretty much nowhere, but it depends on your income. The index has found that renters in every capital city are now worse off than they were before the pandemic in 2019.
Greater Sydney has now taken out the dubious title of least affordable rental market in the country, outpacing Hobart, which comes in second. Renters in Sydney are spending an average of 29% of their salaries on rent for an average of $650 a week.
Greater Brisbane is the third hardest place to rent in the country, followed by Adelaide, Perth, and the ACT. Melbourne is actually the most affordable place to rent in the country, although it too has taken a steep dive since October 2021.
Regional areas are, however, not exempt from increases as regional Queensland was found to be the most unaffordable place to live anywhere in Australia. Rent there averages $553 per week, a third of the average income in that area.
Spending 30% or more of your income on rent is the threshold for rental stress. This is the point where rent really starts to eat into someone’s ability to buy other necessities like food and energy.
Other regional areas, including Western Australia and South Australia, saw affordability decline by 7-8% since the pandemic. Other than regional Tasmania, where prices remain stagnant, every other regional area declined in affordability by at least 3%.
For those on low to moderate incomes, the situation is even more dire. Rental increases have outstripped JobSeeker allowance increases, meaning that a single person on JobSeeker must spend 75% of their income if they want to rent a one-bedroom apartment in any capital city. Single pensioners will need to spend 50% of their income or more to achieve the same.
“This downward spiral has now reached the point where very few affordable long-term rentals are on offer,” Witte said.
What Is Being Done to Solve the Housing Crisis in Australia?
The housing crisis hasn’t been caused by one thing but a multitude of factors. As such, solutions to the problem will also need to be multifaceted.
“This is a social challenge but also a deep economic problem,” Witte said.
“We need to address this problem from multiple angles. This means expanding social and affordable housing investment, rethinking how we use tax subsidies for housing and strengthening renters’ rights”.
Experts have long said that building more houses is a simple but effective solution to the problem. Of course, doing so is easier said than done. Medium and high-density developments in established suburbs are thought to be the key to deflating the housing market, but that comes with pushback from people who live in those areas.
Australia has a target of building 1.2 million homes over the next five years but already those plans are appearing to fall short due to regulation and market conditions. In NSW, where rental affordability is the lowest, local councils have rejected medium-density housing plans. Premier Chris Minns has said more assistance is needed from federal government to get plans through. He has also pledged to review the short-term accommodation market in the state next year.
Others argue that the tax system needs restructuring, with negative gearing and capital gains tax scrapped to make property a less profitable investment. There is some traction for radical ideas like this one, with the view that housing ought to be treated as a human right rather than a financial asset.
Overall, there are no short term fixes and governments at all levels are facing criticism for not tackling the problem.
“Given that the number of private renters is increasing, if significant steps are not taken, this decline in affordability will only worsen, leaving more and more people in vulnerable rental situations,” the report states.