Australia’s rental affordability drops to worst levels in nearly a decade

New report shows average households are spending a third of income on rent while lower income families pay more than half their earnings

Australian rental affordability has dropped to its worst levels in nearly a decade, with the average household spending a third of its income on rent, as the impacts of the Covid pandemic continue to be felt on the market.

Lower income households pay even more, with more than half of their income going towards their rent, according to new research from ANZ and CoreLogic.

The ANZ CoreLogic housing affordability report has found rental affordability – the portion of income required to service a new lease – is at its highest level nationally since June 2014, with 30.8% of an average income required to service a new lease.

Perth saw the worst deterioration of housing affordability for lower income households between March 2020 and March 2023, while Hobart recorded the worst housing affordability figures, with nearly 60% of income needed to pay rent.

Only Melbourne saw a slight reduction in the portion of income needed to pay rent for lower income households, due to the growth in income at the 25th percentile level.

Sydney is still the most unaffordable market for home ownership. The report found that, on average, Sydneysiders paid more than half their income towards their mortgage, and would take about 12 years to save up enough for a 20% deposit.

The report attributed much of the pressure on the housing and rental market to supply, an issued intertwined with the onset of the pandemic. Soaring construction costs and interest rates have also forced more people into the rental market.

ANZ senior economist Felicity Emmett said while the affordability figures were not surprising due to the rental crisis, they meant more people would be forced into difficult living situations.

“For someone to be [spending] 50% of their income on their rent means that there’s very little left over for anything else,” she said.

“It actually means these people on the 25th income percentile will really struggle to pay their rent and are likely to be forced to either live with more people and share the costs around, or perhaps try and seek out government supported housing, and some might have to turn to homelessness provisions.

“Paired with a decline in social housing, rental demand pressures are being felt in all income brackets.”

The annual proportion of property approvals where the dwelling would be owned by a government authority has fallen from about 9% in the 1980s to just 1.6% over the past five years. After a brief spike in public sector housing approvals in 2009 and 2010 – a Rudd government social housing initiative in response to the global financial crisis – the decline of social housing has continued in the years since.

PropTrack data showed rents have soared as much as $600 a week over the past year in some suburbs.

Another report from the Australian Housing and Urban Research Institute found that the pandemic has continued to affect demand and supply in the housing market.

The report, by researchers from Curtin University and Monash University for AHURI, found that the pandemic shifted supply via a “surge” in detached dwellings and a “collapse” of apartment development.

The researchers found that changing lifestyle choices, coupled with construction delays, labor shortages and increasing material costs, slowed down supply.

The report said the pandemic had changed what people wanted from their homes, with residents looking for more space inside and out and heightened demand for “lifestyle locations” amid the boom in work from home arrangements.

Prof Steven Rowley, lead author of the report, said the multi-residential sector has been mostly affected by the conditions created by the pandemic, with many developments “no longer profitable”.

“The pandemic showed us just how quickly demand for housing can change, with a shift to homebuyers wanting to escape metropolitan areas; to larger homes and more private space; and to work from home in lifestyle locations,” he said.

“Owners of existing properties are reluctant to sell as there are a lack of options to buy. A very tight rental market means renting in between selling, and buying a dwelling is difficult.

“This will have serious implications for housing markets over the next couple of years, contributing to a housing supply shortage. The lack of new supply and strong population growth means upward pressure on both prices and rents – not good news for potential purchasers or anyone in the rental market.”

The report predicted that it would be “very challenging” in these conditions to deliver one million new dwellings by the end of the decade, adding that the housing market was ill-equipped to deal with any major changes such as a pandemic.

“Supply chains are extremely vulnerable and can quickly cause major delays and dramatically increase project costs,” it read. “The new dwelling supply pipeline, particularly for higher density products, can be turned off very quickly by rising construction costs. It is far slower to turn back on.”


Mostafa Rachwani and Guardian staff

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