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How to understand the impact of Australia’s rental affordability crisis

How to understand the impact of Australia’s rental affordability crisis

Ask a renter in Sydney just how overpriced the property market is, and they’ll wax lyrical for hours about the unfair state of the local property market.

But while Sydney continues to be Australia’s least affordable city for rental homes, it’s actually Melbourne that has experienced the greatest decline in affordability over the last few years, according to the latest Rental Affordability Index (RAI).

Recording the most significant fall in affordability since 2013, Greater Melbourne returned an RAI of 126 in the June quarter, with the average renting household spends around 24% of total income on rent. However, affordability varies greatly across income groups and areas and the lowest income households face one of the worst rental affordability situations of all metro areas in Australia.

“The latest Rental Affordability Index shows housing stress is a common reality for people in the rental market, especially those on low incomes, who have little left to spend on essentials like food, electricity, fuel and education, after paying rent,” says Andrew Cairns, CEO Community Sector Banking.

“People in the lowest income households are being pushed out of the rental market, and into poverty and homelessness – this situation is most dire in Sydney.”

Released biannually and produced by National Shelter, Community Sector Banking and SGS Economics & Planning, the RAI is a consistent indicator of rental affordability relative to household incomes across Australia.

Adrian Pisarski, Executive Officer of National Shelter, says the index reveals that low income households in particular “continue to face unaffordable rents and high levels of housing stress, despite some improvements in the rental market”.

He adds that additional supply in some capitals has not eased rental affordability for low income households.

“We are most concerned that there is no national strategy to tackle housing affordability, especially when we see that additional supply is not reaching low income households, and increases in homelessness are being reported,” Pisarski says.

Understanding the impact of Australia’s rental affordability crisis is important for all Australians. Whether you are trying to buy your first home, keen to upgrade into something bigger or want to tackle the investment market, being way of current real estate trends will help you plan your next move.

As a state-by-state level, the following trends are currently observed:

Sydney rental affordability crisis – continues to worsen

Greater Sydney continues to be at crisis levels in terms of rental affordability, with an RAI of 108 in the June quarter of 2016. The average renting household spends near 28% of its total income to pay the median rent of $480 per week. While most inner city areas are extremely unaffordable, regional NSW also remains the least affordable regional area.

Melbourne rental affordability crisis – placing stress on low income earners

Here, it’s most dire for non-family, mostly single person, households, which pay near 110% of total income on rent, even after discounting average rents for this group by 25% for access to social housing. It’s unsurprisingly then that local social housing groups have witnessed a doubling of people sleeping rough in the streets of Melbourne over the last two years.

Perth rental affordability crisis – still struggles post mining boom

Greater Perth recorded an RAI of 131 in the June quarter, up from 109 two years ago. While rental affordability has continued to improve in Perth since the end of the mining boom, this trend may not continue in future quarters due to a decline in incomes. The average household pays 23% of total income on rent, though the first two quarters of 2016 recorded the first decline in average household income in metropolitan Perth since late 2013, in line with the economic slowdown.

Hobart rental affordability crisis – least affordable market for renters

In Hobart, the average household pays around 27% of total income on their rent. Hobart continues to score poorly in the RAI, driven by lower incomes and high rental yields, which generate high levels of rental stress. In particular, rents are extremely unaffordable for low income earners in Greater Hobart, where 50% or more of total income is spent on rent.

Brisbane and Adelaide ‘reasonable but volatile’

While both Brisbane and Adelaide scored reasonably overall in the latest index, there remains some volatility. Median rents fluctuated most significantly in Brisbane, from a high of $409 in March to a low of $397 in June 2016. The average household renting in Greater Brisbane would pay around 25% of total income, while those in Greater Adelaide spend near 27% of total income on rent.