Urgent action needed on rents, as pressure grows on sector

The latest Rental Affordability Index has clear implications for policymakers with calls growing to increase financial support for those struggling.

Australia’s rental market is in a dire state, with both regional and rural areas now out of reach for a substantial number of renters.

And without drastic and immediate intervention, households around Australia could be forced into homelessness.

That’s according to the latest Rental Affordability Index, released by National Shelter, SGS Economics and Planning, the Brotherhood of St Laurence and Beyond Bank Australia.

This year’s index reveals that regional areas have been hardest hit by rising rents, with rental affordability worsening in regional areas in every state.

Hobart is still Australia’s least affordable city, a title it has held since 2019.

According to the index, the average rental household in Hobart is now close to being in rental stress, defined as housing costs that exceed 30 per cent of a low-income household’s gross income. Hobart’s renters currently sit at 29 per cent of total income if renting at the median rate.

The index also reveals that every capital city has experienced a decline in rental affordability in 2022, with Greater Perth at its lowest affordability since 2016 after suffering a 15 per cent decline over the past two years.

But as rental affordability declines, the proportion of households renting in Australia has increased, from 26 per cent to 31 per cent between 1995 and 2020.

At the same time, the proportion of public housing tenants almost halved from 5.5 per cent to 2.9 per cent, and housing costs for renters increased relative to owners with renters currently spending an average of 20 per cent of their income on housing costs.

The index notes that there are a range of factors that contribute to rental unaffordability, including an higher number of investors keeping potential homeowners out of the market, income inequality and less social and affordable housing.

But investors can also be part of the solution, with a new fund seeking to bolster stock of affordable housing.

Low income households struggle to keep up

The Rental Affordability Index considers affordability for a number of key low to moderate income household types: single pensioner, pensioner couple, single person on JobSeeker, single part-time worker parent on benefits, single full-time working parent, single income couple with children, dual income couple with children, student sharehouse, minimum wage couple, and hospitality worker.

For single people on JobSeeker, rents are “severely unaffordable to extremely unaffordable… across all metropolitan and regional areas”, highlighting the inadequacy of JobSeeker payments.

Conversely, dual income couples with children fared better, with metropolitan and regional areas ranked as affordable for this cohort.

Raising income support crucial to tackling rental affordability

Emma Greenhalgh, CEO of National Shelter, said households’ money was simply not keeping pace with the cost of living.

“When we’re talking about people from very low incomes, the money that they’re getting is not stretching in the same way, with not only the rent increases, but utilities and energy and food and fuel,” she said.

“They’re having to try and slice the pie in a different way when what they need is a bigger pie.”

She added that unaffordable rents are driving families further away from work, school and support networks, potentially creating further social and health problems.

But with regional rents now rising as high as metropolitan rents, low-income families have fewer places to go.

“What it means is that there could be very few prospects for people. So if they can’t move away to find something more affordable, they are facing homelessness in its absolute sense or they’re then going, well, I want to keep my housing and then have to forgo a whole bunch of other essentials and draw on community services.  And that has severe health and well-being impacts for their family,” Greenhalgh explained.

She urged the housing sector, and policy makers, to see the “human cost” behind the rental crisis.

“If we don’t fix housing and get it right… it has impacts for generations.”

National Shelter is also calling for “intense and sustained” investment in social and affordable housing, with delivery ramped up to 25,000 social and affordable homes per year.

Tenancy reform is also urgently needed, Greenhalgh said, so that there is consistency across jurisdictions and tenants are placed at the centre of tenancy legislation to make things fairer.

Income support payments also need to be urgently lifted, she added, along with Commonwealth Rent Assistance (CRA), which National Shelter would like to see increased by 50 per cent.

Ellen Witte, partner at SGS Economics and Planning and lead author of the Rental Affordability Index, said the pandemic had “completely changed” the rental market as people went in search of tree and sea changes.

“Regional areas are much worse off than before,” she said.

Tasmania in particular had suffered from high population growth outstripping housing provision.

Areas impacted by this year’s floods are also suffering, Witte added, as those who have lost their homes compete for a spot in a tight rental market.

“The problem is just getting bigger and needs some significant urgent action.”

But she added the index had clear implications for policymakers.

“Actually increase the supply of social and affordable housing — so that is housing that is specifically aimed at lower incomes and that is in the rental sector. It’s important to offer that and not just focus on homeownership because once a house is provided at an affordable rate for ownership, it’s basically lost forever because that house won’t be available for anyone else anymore as an affordable house. So it’s important to have quite a significant stock of affordable rental housing,” she explained.

Investors leap into action

Ahead of the release of the Rental Affordability Index, specialist affordable housing fund manager Super Housing Partnerships (SHP) has launched with $240 million in funding from founding investment partner HESTA.

This money will seed a pipeline of Victorian build-to-rent apartment projects, including social, affordable, market-rate and specialist disability housing.

SHP seeks to address some of the barriers to institutional investment in affordable housing at scale through an aggregator-style platform combined with specialist funds management skills, partnering with affordable and sustainable housing developers and community housing providers.

SHP will aggregate capital from institutional investors into its housing strategies.

“We have the opportunity to innovate and invest to meet an unmet need, providing our members with appropriate risk-adjusted investment returns by improving housing supply,” HESTA CEO Debby Blakey said.

“A lack of access to housing impacts our members who provide critical services and need to afford housing near their work, and economic productivity that presents broader systemic risks to long-term investors like HESTA.”

SHP venture partner Kris Daff said SHP would be “a crucial part of the solution to the acute and growing shortage of affordable housing in Australia by providing institutional investors with the opportunity to invest in a developing portfolio of affordable projects and, in due course, completed assets.”

“There are society-wide negative impacts associated with the housing affordability crisis. It was not that long ago we were worried about how ordinary working Australians were able to purchase their first home – we have moved well beyond that to a point where the concern is now how everyday Australians can even rent a home,” Daff said.

Blakey added HESTA and SHP are working with governments to “address blockages” that prevent institutional investment at scale in housing.