The dream of home ownership is out of reach to growing numbers of Australians as the nation grapples with a chronic lack of affordable housing, a new report shows.

Australia is undergoing a significant change whereby home ownership may no longer be the norm, according to a report released on Thursday by the Australian Institute of Health and Welfare.

Home ownership is falling as mortgage debt and the proportion of renters rises, the report finds.

“Australia is experiencing generational change when it comes to home ownership, with younger households being affected by factors such as economic constraints, lifestyle choices and work-home preferences … therefore limiting their ability to become home owners,” the report states.

Renters now make up more than a quarter of all households, with the proportions of private rentals increasing from 18.4 per cent to 25.3 per cent between 1994-95 and 2015-16, according to the Australian Bureau of Statistics.

The proportion of households living in homes they own fell from 71.4 per cent to 67.5 per cent across the same period.

Home ownership is declining while renting is on the rise. Source: ABS

The nature of home ownership in Australia is undergoing a “huge shift”, according to Curtin University professor of economics Rachel Ong.

“The home ownership sector is now becoming increasingly unstable,” she said.

“We’ve had consistently high house prices relative to incomes and young people entering home ownership much later.

“The ones that manage to [buy a home] are having to take larger mortgages, and carrying larger mortgage debt into retirement.”

Declining home ownership will lead to greater wealth inequality, as young people with wealthy parents become much more likely to own homes than those with parents who are renters, Dr Ong said.

The shift towards “precarious” home ownership is not merely confined to young people, though, with Dr Ong instead describing an “intergenerational wealth gap”.

Renting is on the rise in Australia. Source: ABS

The AIHW report shows fewer Australians are owning their home at retirement, with financial hardship forcing growing numbers of older Australians to transition from home ownership to renting as they approach retirement.

The decline has significant implications for our standard of living in retirement, and will put increased pressure on the age pension system, which was devised around an assumption of home ownership, Dr Ong said.

“It’s now more common for older people to fall out of home ownership in their 50s due to mortgage stress, and the chance of getting back into home ownership [at that age] is low,” Dr Ong said.

“That’s going to put a lot of pressure on the social housing system.”

Social housing fails to keep up with demand

Government-funded social housing has failed to keep pace with household growth, with the number of social housing places falling from 5.1 per 100 households in 2007-08 to 4.6 in 2016-17, the AIHW report shows.

Waiting lists remain long, with 189,400 households awaiting social housing allocation as of June 30, 2017.

“We know for a fact that there is a shortage of supply for social housing relative to demand,” Dr Ong said.

“It is a chronic and persistent issue. It’s not one that will go away unless we’re willing to increase the size of affordable housing in Australia.”

With the supply of social housing under serious strain, overcrowding has become rife, the AIHW report shows.

The problem is particularly acute for Indigenous Australians, with 24 per cent of state-owned-and-managed Indigenous housing (SOMIH) considered to be overcrowded at June 30, 2017.

Overcrowding was highest in the Northern Territory, with 7 per cent of public housing and 56 per cent of SOMIH overcrowded, and in New South Wales where 7 per cent of mainstream community housing is overcrowded.

Investment in affordable and low-income housing is desperately needed, Dr Ong said.

“It’s clear, the figures show there remains a need for more investment in affordable housing for vulnerable groups in society.”