Households Paying up to 85% of Income on Rent

Low and moderate-income households are paying up to 85 per cent of their income to secure rental properties in Australia, according to new data.

Photo credit: TK Kurikawa

The Rental Affordability Index, created by National Shelter, Community Sector Banking and SGS Economics & Planning, revealed that low-income households – those on around $500 a week – typically pay at least 50 per cent of their income on rent.

The index said it was generally accepted that a household is in stress if it pays more than 30 per cent of its income on rent.

The index also found that rental affordability problems were extending to professionals who were forced out to fringe suburbs where there were fewer jobs, less infrastructure and fewer opportunities, entrenching their disadvantage.

“Essential service workers like teachers, nurses and police are also being affected, potentially leaving service gaps in the suburbs they’re being priced out of,” National Shelter executive officer Adrian Pisarski said.

Pisarski told Pro Bono Australia News the problem was nationwide.

“Sydney, Melbourne, Brisbane – virtually all of our capital cities remain unaffordable, particularly for low and moderate-income households,” Pisarski said.

“Sydney is still the least affordable city to rent in in Australia, but none of our capitals are really affordable places to rent.

“Even our regional centres across the country, places like Newcastle, Lismore, Byron Bay, even Dubbo, Parks and Bathurst in New South Wales, those sorts of regional centres all continue to show unaffordable rental housing on average. So for low and moderate income households again, even our regions aren’t affordable.”

This index, the second of its kind, included historical data dating back to the mid-1990s to determine when the rental affordability crisis began. As Queensland and New South Wales yielded the best data, they were used as proxies for the rest of the country.

Pisarski said there had been a significant deterioration in affordability since 2000, which was linked to changed tax measures.

“What we can see is in Brisbane from 2001 rental affordability has really deteriorated rapidly, and in Sydney that happened from about 2006,” he said.

“All of that is consistent with it being linked back to the increase in capital gains tax discounts [50 per cent] for investors in 1999 – that seems to have triggered a push by investors to purchase more housing.

“You would think that might have made things better for the rental market, but what has happened is that they have really been purchasing existing supply only rather than new supply. They haven’t been adding to supply and therefore helping solve the problem, they’ve been bidding against homeowners for the same available supply, and therefore locking out generations out of homeownership.

“That then cascades down into the rental market and means the rental market has become less, rather than more, affordable. And we haven’t had the new supply that would have helped that situation either.”

Economist Saul Eslake said that in the early 1990s, first-home buyers accounted for around 17 per cent of the total housing market, with the remainder going to repeat buyers.

“By the current financial year, however, the share of total housing lending going to first-time buyers is just 11 per cent, while the share going to investors is rising to 46 per cent,” Eslake said.

SGS Economics & Planning associate Ellen Witte said, as a result, the percentage of households renting had grown to 35 per cent across Australia.

“Single income households are the worst off and the trend over the last five years has mostly seen no improvement, except in Perth, where the mining downturn is likely to have taken the heat out of rents,” Witte said.

“Long-term trends in most cities present a pessimistic outlook for rental affordability. More young Australians are being squeezed out of the owner-occupier property market due to high housing costs, and this is driving up demand and prices for rental accommodation, exacerbating the rental accommodation shortage.”

Pisarski said that lack of rental affordability would have detrimental run on effects.  

“Effectively people are in poverty as a result of paying their rent, and we’re pushing low and moderate income households further and further out, and we’re also reducing the level of homeownership in Australia,” he said.

“So all of those are negative consequences for the Australian housing market and the bottomline of all of that is we’re going to see an increase in homelessness as a result. Far more people are reporting becoming homeless just through an inability to afford somewhere to live.”

 He said there needed to be a national housing strategy, led by the Commonwealth and involving the states, local governments, the private sector and the community sector.  

“What we really need to see is the Commonwealth providing an incentive for the private sector to invest in this area so we can get a dedicated supply of affordable housing targeted at low and moderate income households,” he said.

“We had something like that under the national rental affordability scheme, but that’s been cut and unfortunately there’s nothing that’s replacing that.

“To their credit, the federal government has looked at a financing mechanism to attract private finance, but we’ve heard nothing throughout the [election] campaign about housing affordability or how we’re going to address this problem.

“So we really need a national housing strategy, led by a national minister within the cabinet to drive all of the elements that are required to develop a big reform agenda for affordable housing in Australia.”

Community Sector Banking CEO Andrew Cairns said there was a dire need for more innovative financial models to support affordable housing.

“We’re calling on governments, companies and philanthropists to collectively use their power to create sustainable solutions now,” Cairns said.

“$10 billion in funding would deliver 30,000 to 40,000 more homes and go some way to addressing this crisis.”