Melbourne’s rental market is ‘fundamentally broken’

• Rental affordability across great Melbourne has plummeted 10 per cent in 12 months.
• Melbourne's overall rental affordability rating is 126, which is moderately unaffordable.
• Options for rentals that cost 15% of income are rapidly vanishing.

The dire state of rental affordability in Melbourne has just been thrown into sharp relief.

According to the latest Rental Affordability Index, released by peak housing body National Shelter and SGS Economics, an average Melbourne rental property costs 24% of the average household’s income of $108,955.

To put this into perspective, a renter spending over 30% of their income would put them under what’s considered ‘rental stress’.

The index gives Melbourne an overall affordability rating of 126, which is approaching what analysis considers to be moderately unaffordable.

Rental affordability index, Greater Melbourne

Moreover, for people on low incomes such as single people on Jobseeker, single or coupled pensioners, and single part time worker parents on benefits, rents were classified as either ‘extremely unaffordable’ or ‘severely unaffordable’.

National Shelter CEO, Emma Greenhalgh, said “In Melbourne, students and people on lower incomes are priced out of entire swathes of the city. The rental market is fundamentally broken.”

What has changed in the last year

According to SGS Economics & Planning principal, Ellen Witte, there was an entire corridor that was considered to be affordable to the average rental household last year, stretching from Footscray in the inner west north to Meadow Heights.

However, as of the June 2023 quarter, she said those options that cost less than 15% of a household’s gross income had all but vanished.

Furthermore, according to the Rental Affordability Index, in 2022, many inner suburbs, especially in the inner north, provided affordable rents. Renters could live as close as 5km to 10km away from the CBD in suburbs such as Footscray, North Melbourne, Parkville or Carlton, as well as Hawthorn.

This year however, the average rental household would have to look as far as Sunshine, about 15km from the CBD, to find affordable rents at the median rate.

Rents have risen 16% over the past year, driven mainly by rapid price rebounds in one and two bedroom apartments that now exceed pre-pandemic levels.

Top 5 least affordable postcodes in Greater Melbourne

Source: SGS Economics and Planning

Back to pre-pandemic levels

According to the report, rental affordability has dropped 10% since the June quarter of 2022 and returned to 2018 levels, offsetting any gains made during the pandemic.

“Unaffordability has spread from the cities to well into the regions,” said Witte.

“Households will have to live further away from where the jobs are to access affordable rents, and businesses are struggling to find workers.”

Witte added that this is a problem that needs to be tackled on multiple fronts.

“This downward spiral has now reached the point where very few affordable long-term rentals are on offer,” she said.

“We need to attack this problem from multiple angles; this means expanding social and affordable housing, rethinking how we use tax subsidies and strengthening renters’ rights.”