Finance Property Renting is becoming more affordable for the average Australian

Renting is becoming more affordable for the average Australian

Australia's rent-to-income ratio has been falling since 2012, according to ANZ and CoreLogic.
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A boost in the supply of rental properties has led to a slight drop in rents – but lower-income households are still doing it tough.

Grattan Institute research fellow Brendan Coates told The New Daily that a boost in supply over the past three to four years had made renting more affordable for the average Australian – a view shared by CEO Greg Bader, who said choice for renters had improved and rents across the board had mostly flatlined or dropped.

Mr Coates said a recent ANZ-CoreLogic report – which demonstrated rents as a proportion of gross household income had been in constant decline since 2012 – was strong evidence of “the clear relationship between supply and rent”.

“A lot of people argue that the basics of demand and supply don’t apply to housing, but they do. That’s what the Reserve Bank found, and that’s what we [the Grattan Institute] found,” he said.

“So if we keep building, we will see rents fall further – and that will improve affordability.”

The report found that national median rents were now cheaper than national mortgage repayments on median-priced dwellings – with the former equal to 28.2 per cent of gross household incomes (28.4 per cent for units) and the latter equal to 36.1 per cent.

Rent to income ratio
ANZ and CoreLogic argue that rental affordability is improving.

However, Mr Coates said that lower-income households were the least likely to benefit from falls in median rents, as they had fewer opportunities to “trade down into a cheaper home”.

“Once you’re at the bottom of the market, there’s nothing cheaper for you to move into – you’re already in poor-quality housing that’s far from jobs and transport. The only option is to pay more or end up on the street,” he said.

But while rents as a proportion of household income have been falling since 2012, rental stress – defined as when households spend more than 30 per cent of their income on rent – is on the up.

Mr Coates said it’s unclear why this is the case.

It could be because renters feel compelled to move into more expensive suburbs, so that they are closer to better jobs, infrastructure and amenities, he said. Or it could be because some renters are actively choosing to spend more on housing.

Meanwhile, Tenants Union of NSW senior policy officer Leo Patterson Ross told The New Daily that while rents were falling, they still had a long way to go before they could be considered affordable.

“Slight improvements here and there kind of miss the point,” he said, adding that supply-focused explanations of housing affordability were too simplistic.

“It’s not quite a straight line between build more and rents will fall – those arguments ask you to believe that [developers] will build enough so their profits will fall,” he said.

“But that’s sort of a fantastical argument.”

Household consumption
While rent-to-income ratios have fallen, lower-income households are now spending more on housing costs.

Mr Patterson Ross added that tax settings needed to change so that investors viewed property more as a long-term source of rental income and less as a short-term capital gain opportunity.

And he also said governments needed to build more social and affordable housing, to reduce the level of rental stress experienced by lower-income households.

“Say you’re on $23,000 a year – so not even on Newstart – there aren’t rents that don’t leave you below the poverty line,” he said.

“Building more social housing would give lower-income tenants an alternative to private housing, meaning that landlords would have to offer them a better experience, or else run the risk of losing their business.”

Mr Patterson Ross’s comments come just months after UNSW City Futures Research Centre released a report arguing that Australia needed to build more than one million social and affordable houses over the next 20 years to combat the housing affordability crisis.

The report’s lead researcher, UNSW research fellow Laurence Troy, told The New Daily at the time that the lack of affordable housing was fuelling a crisis of homelessness.

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