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Image: The Property Tribune; Henry Thai.
  • Hobart is the least affordable place in Australia
  • Vacancy rates have reached as low as 0.2% in some cities
  • Better, more consistent policy is being called for to incentivize investors

Renting in the Australian property market remains as tough as getting blood from a stone. The monthly plunges in vacancy rates and non-existent rental stock continue to Covid-19 the market, with few to no signs of abating.

It comes as no surprise that reports continue to be released issuing the same dire warning from every angle.

Rental affordability at all time low

Now in its eleventh edition, the Rental Affordability Index (RAI) began publishing annually since 2019.

The report confirms what everyone suspected: it is tough to be a renter.

However you look at the report, the statistics are shocking and are all records in their own right:

  • Hobart is the least affordable city to rent in Australia,
  • Some regional areas are worse than capital cities, and are the hardest hit,
  • Greater Sydney has seen rental affordability continue to slip,
  • Greater Perth has hit 2016 lows and has been declining some 15% over the past two years, and
  • Greater Brisbane has hit a historic low point for affordability.

The report also found that “… rents are escalating faster than incomes across the country, with low vacancy rates, interstate migration, and global supply chain issues contributing to increased rents.”

How low are rental vacancy rates in Australia?

To employ some true blue Aussie vernacular: Vacancy rates have gone troppo.

The latest figures from Domain show vacancy rates of some 0.8% across the nation, with August previously showing 0.9%.

SQM Research data painted a similarly grim picture of Australia’s vacancy rates. Some cities experienced as low as 0.2% vacancy rates.

National Shelter CEO Emma Greenhalgh said the nation’s social and economic well-being is at risk, with housing stress and homelessness increasing as the nation experiences a lack of affordable housing options.

“Rental increases mean individuals and families are forced to move away from family and friends driving disconnection at the same time they are struggling to find money to pay for essentials like food, utilities, and healthcare. Key workers, including nurses and teachers often can’t afford to live in the communities they serve.”

The RAI uses the 30 percent of income rule. Whenever individuals, couples or families pay 30 percent of income or more on rent, they are in a situation of rental stress. This means they have insufficient funds to pay for other primary needs such as food, medicine, transport and heating.

“We found that the static or slightly falling rents of the early pandemic were short-lived, with rents now being equal or higher than pre-pandemic, and Hobart still the least affordable city,” said Ellen Witte, the report’s lead author and a Partner at SGS Economics and Planning.

“The pandemic also saw the existing rental crisis spread to the regions, when many households left capital cities. More and more regional households are struggling to pay their rent and key workers are unable to access housing, especially in the regional areas of Queensland, Tasmania, NSW and Western Australia,” said Witte.

“This year’s severe floods also significantly impacted affordability in the Northern Rivers of NSW. Lismore is one of the worst affected towns, where affordability declined by 10 per cent between 2021 and 2022. Bellingen was similarly affected, with affordability declining by 14 per cent,” Witte added.

“Low-income renters need more active intervention. We need rental reform that includes limiting rent increases and adjustments to income support including Commonwealth Rent Assistance. We also need greater investment in social and affordable housing to reverse a decade-long decline,” Emma Greenhalgh added.

According to Professor Shelley Mallett, Director at the Brotherhood of St. Laurence’s Research and Policy Centre, declining housing affordability is threatening the viability of essential public services in our nation’s cities.

“Key workers in fields such as education and healthcare find it difficult to rent in communities they serve, so to ensure longevity of vital services, there needs to be improved access to affordable housing for staff and policies in place such as caps to rent increases,” Professor Mallett said.

“While it’s promising to see plans like the Housing Australia Future Fund, the National Housing Accord and the development of a National Homelessness Plan, more has to be done to support the health and wellbeing of communities, and low-income earners doing it particularly tough,” Ms Greenhalgh said.

Rents increase, but quality fails

A brief interlude with some rental failures: The Property Tribune has previously looked into the issue of renting, and one expert was concerned about how rentals are viewed.

When rental housing was considered a cash cow, tenants came last: rents continued to increase, but quality or output did not.

Up for debate – indeed very much an ongoing one – whether tenancy law changes are necessary.

Some argue that rental controls or other changes have no real impact on investors leaving the market, while others believe it will send rental supply to rock bottom; indeed one survey found three out of five investors would sell up and get out of the rental sector.

Government needs good policy to drive investment

A new report has found that investing in rental homes is a super option for investors, delivering stable, long-term returns that are mostly immune to economic conditions.

The Frontier Advisory report commissioned by Industry Super Australia found that the estimated 671,000 affordable housing shortfall to occur over the next decade and impetus from the federal government to partner with institutional investors could lead to the creation of a new asset class whose returns are not influenced by market peaks and troughs.

Of course, there are some important caveats: namely, good government policy.

The report found that without meaningful and consistent government concession schemes that boost returns for private investors most affordable housing projects are unviable.

Among the recommendations made in the report:

  • Create clear planning requirements that mandate social and affordable housing components on new developments, incentivising greater density near public infrastructure and set affordable housing targets for local governments to meet.
  • Stimulate the Build-To-Rent market through incentives, streamlined planning, guarantees and reduced funding red tape. Build-to-rent is practically non-existent in Australia but is 28% of the property sector in the US and 11% in Europe and has a positive impact on affordability in large cities.
  • Encourage mixed tenure developments and build-to-rent-to-sell developments, investors can subsidise reduced rents through increases in capital values of the holdings
  • Audit publicly owned land for underutilised properties in well-situated areas that could be converted into social and affordable housing projects
  • Encourage more public private partnerships with state governments

It was also noted that Australia has the lowest proportion of social housing among OECD nations, with just 4% of Australian housing stock classified as affordable.

Considerable work still needs to be done to improve the situation in Australia.

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