Record low rental affordability puts low-income earners under severe rental stress

Surging rents and low vacancy rates are putting an increasing number of households under rental stress, with low-income earners the hardest hit according to a new report.

The latest Rental Affordability Index from SGS Economics & Planning found 42 per cent of low-income renter households are in rental stress, compared to 35 per cent in 2008. 

This number is even higher in many locations, with 47 per cent of low-income households in NSW under extreme levels of rental stress.

According to the report, every capital city experienced a decline in affordability this year, with rental affordability hitting record lows in some areas.

There is also less social and affordable housing stock available than a decade ago, meaning many low-income earners are forced to pay unaffordable rents in the private market.

National Spokesperson for Everybody’s Home Maiy Azize said it’s a national shame that our wealthy, lucky country has so many people struggling to live safely and affordably.

“Australia’s housing crisis has reached fever pitch,” Ms Azize said.

“No part of the country has been spared. 

Rents are shooting up in towns and regions, and our cities have never been more expensive.”

According to the report, Greater Hobart continues to be the least affordable capital city in Australia for the average rental households of each city. 

Although household incomes in Tasmania are significantly lower than the national average, rents are only marginally lower than mainland averages.

There has been a stark contrast in affordability trends across mainland capital cities over the past few years. 

Greater Sydney, Greater Melbourne, Greater Adelaide and the ACT improved in affordability during the COVID-19 pandemic but declined this year. 

​​Rental affordability in Greater Brisbane, Greater Adelaide, and Greater Perth did not improve as much in 2021, as these cities were not as severely impacted by pandemic restrictions. 

Greater Brisbane experienced the sharpest decline in rental affordability of all capital cities this year while both Greater Adelaide and Greater Perth fell by six per cent.

Currently Melbourne, the ACT and Perth have acceptable rents while Hobart is the most unaffordable.

According to the report, the proportion of households renting is on the rise, increasing from 26 per cent to 31 per cent between 1995 and 2020. 

Over the same period the proportion of public housing tenants almost halved from 5.5 per cent to 2.9 per cent. 

Housing costs for renting households have also increased over the same period, relative to owners. 

Renters currently spend an average of 20 per cent of their income on housing costs, while owners with a mortgage pay 15.5 per cent. 

The Australian Housing and Urban Research Institute estimates 1.3 million households need additional housing assistance.

Ms Azize said a lack of social housing had a significant impact on higher rents.

“It’s clear that the chronic underinvestment in social and affordable housing over the past decade has created a domino effect of housing stress in all corners of the country,” she said.

“Stagnant wages, low rental vacancy rates and rising interest rates all add to rental stress but the huge shortfall in social and affordable housing is one of the biggest drivers.”

The report found the shift towards renting, and increased rental costs, had been driven by a range of factors including the introduction of the capital gains discount in 1999, combined with negative gearing, which has dramatically increased the number of investors who compete with homeowners for available property and kept more households out of home ownership – trapping them in the rental market. 

Recent interest rate conditions and widening income inequality reinforce this effect. 

Investors have pushed out would-be homeowners, so more households with middle to higher incomes are renting for longer, the report said.

This impacts lower-income renters by driving up rents while higher-income households seek more affordable rents to increase their ability to save a deposit to move into ownership, which further displaces lower-income households from lower-cost rentals and increases their level of housing stress.

Ms Azize said the report showed renters spend more of their income on housing compared with homeowners with a mortgage. 

“We are seeing more and more Australians competing in an unaffordable rental market, because there’s less social and affordable housing available compared with a decade ago,” she said.

“We need governments to ensure all of us have a safe place to call home by building at least 25,000 social and affordable houses each year to keep up with demand. 

“We also need to expand and raise Commonwealth Rent Assistance to ensure people struggling to make ends meet aren’t forced to choose between paying rent or putting food on the table.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.