Shortcuts / 20 April 2023

The rental crisis

For months we’ve been hearing horror stories from the rental market – of landlords jacking up prices by hundreds of dollars, and lines stretching around the block at open inspections. Australia is in a rental crisis, and experts say it could get a lot worse. So in this Squiz Shortcut, we take you through Australia’s rental market, why we’re in a crisis right now, and some ideas being put forward to fix it.

So we’re in a rental crisis, eh…
That’s what the experts say… Back in October 2020, the average weekly price of a rental across all capital cities (including houses and apartments) was $422. Now, that average price is hovering around $560/week.

That’s quite a jump…
It is, especially when you consider the fact wages haven’t kept up with that pace of growth during that time.

Okay, I need some context… How many Aussies are renters?
According to our most recent Census data, 2.9 million Aussie households were renting in 2021. There were 9.8 million households in total, meaning roughly 30.6% of households are renters.

Wait, why are we talking about ‘households’ rather than individuals?
It’s because the stats collected during the Census are measured by households, which is the industry term for a person or group of people living together.

Right. Any other good rental stats to note?
One is that most Australian renters – around 85% of them – are renting from a private landlord. In comparison, many other countries – particularly in Europe – have a smaller percentage of private landlords and more people renting from institutions or state bodies.

Let’s get back to the dollar figures…
If you insist… So we’ve done some calculations, and if you take the average national rent from 2.5 years ago ($422/week at the start of October 2020) and compare it with the average this month ($568/week in April 2023), that’s a rise of around 34.5% in that time…

Gee whiz… So how have renters’ finances been affected?
We don’t have up-to-date figures on how many people are struggling to pay their rent but we can point to another industry indicator. They call it the 30:40 rule – it says if people in the bottom 40% of income earners are paying more than 30% of their wages in rent, then they’re in ‘rental stress’.

So what do you have to be earning to be included in that bracket?
Well, according to ABS data from 2020, anybody earning less than $1,407/week is in the bottom 40% of income earners. Now, 30% of $1,407 is $422. So anybody earning less than $1,407/week and paying more than $422/week is in rental stress.

And remind me what the average national rent is again…
It’s now hovering around the $560/week mark, which is well above that upper threshold for lower-income earners. Keep in mind that these are average numbers, though.

Let me guess… COVID has something to do with this?
You’re right on the money. What happened during the pandemic was that many people moved out of sharehouses and downsized into their own place or with their partners.

So households are shrinking?
Yep, since 2020, the average size of an Aussie household has fallen below 2.5 people for the first time.

And if you have fewer people living together, you’re going to need more houses…
That’s exactly right – but that’s not the only cause of the crisis.

What else is going on?
Experts have pointed to the post-lockdown return of overseas migration – although remember Oz was able to house overseas workers and international students before the pandemic. But popular cities like Sydney and Melbourne are seeing increased rental demand from migration.

And what’s happening with housing supply?
This is where things get really tricky because while demand for rentals has been increasing, construction on new homes has been hitting some snags.

What kind of snags?
There are a couple of things – firstly, the construction workforce was stretched by COVID, in part because when we closed our borders we cut off potential construction workers. And secondly, there have also been disruptions to global supply chains.

What does that have to do with building homes?
Well, it turns out it’s really hard to get the raw materials you need for building a home or apartment block. Countries like the US and China are experiencing a similar demand for homes but they have more buying power than us. On top of that, a lot of the world’s treated wood comes from Ukraine, and, you know…

So even if there were enough builders, they might not have enough materials to build homes
That’s right. A recent report from the government’s National Housing Finance and Investment Corporation estimates that Australia’s housing supply will be short by 106,300 homes over the next 5 years. So basically, we need way more homes than we can build.

Has anything been proposed to tackle this?
The Albanese Government has a plan to get more houses built, which they call the National Housing Accord. So similarly to how many European countries have more institutional landlords than private landlords, the Albanese government is trying to encourage big investors like superannuation companies to put some money behind ‘build-to-rent’ housing.

What the what?
The idea behind ‘build-to-rent’ is that a property developer would build an apartment block, and then instead of selling the apartments to individuals, they – or another institution – would hold onto the block and rent out the apartments.

How’s this plan been received?
The Property Council of Australia – which is the industry body representing property developers – is a big fan. It has proposed a set of tax adjustments to financially encourage institutional investment in property.

So the plan’s going ahead?
We’ll find out in May when the Albanese Government releases its federal Budget. It’s worth noting, too, that the government has floated the idea of creating more affordable housing by subsidising the rent on some of these institutionally-backed apartment blocks.

How would that work?
The renter will pay below market price, and the government will make up the difference with the institutional investor.

Where would these apartment blocks be built?
It’s a tricky one because homes are only useful if they’re built where people want to live, and people want to live in inner cities or close to work. But local residents don’t necessarily love it when big apartment blocks are built in their neighbourhoods, so part of the federal government’s plan is to work closely with state and local governments to smooth out the approvals process for well-located apartment blocks.

And I have to ask… Is this actually going to solve the housing crisis?
It’s a great question and a difficult one to answer because housing is a complex market and progress happens at the pace of years. Nobody can snap their fingers and decrease rental demand, or increase rental supply.

So, no quick fixes?
Nope, we’re definitely going to be seeing climbing rents and packed-out inspections for a little while longer. Good luck out there, renters…

Squiz recommends:

Renter-friendly renovator Alexandra Gater’s YouTube channel

An interactive chart of changes to Aussie rents over time – SQM Research

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