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Key takeaways
The Australian rental market is witnessing a significant shift, with higher-income earners increasingly dominating the rental space while lower-income earners struggle to find affordable housing.
The proportion of higher-income earners in the rental market has grown substantially over the years, while the number of lower-income renters has remained relatively stable.
Deteriorating housing affordability is a major driver of this trend, with homeownership becoming increasingly out of reach for many Australians, particularly those on lower incomes.
Rental prices have surged significantly faster than household income growth, leading to higher rent-to-income ratios and making it difficult for median and lower-income households to afford rentals.
The rental market crisis requires urgent attention and innovative solutions. While temporary measures like Commonwealth Rent Assistance can help, long-term solutions should focus on increasing the supply of affordable housing, supporting first-time homebuyers, and exploring alternative strategies to alleviate rental market challenges.
There’s a noticeable shift in the Australian rental market with high income earners squeezing lower income earners in the rental market, according to a paper by the Australian Housing and Urban Research Institute (AHURI).
Higher-income earners, those making $140,000 and above per year in 2021, grew from 8% of the private rental market in 1996 to nearly a quarter (24%) by 2021.
Meanwhile, the number of renters on lower incomes, those earning up to $46,000 in 2021, stayed relatively steady during the same period.
The trend toward renting among higher-income earners is driven, in part, by deteriorating housing affordability, says Eleanor Creagh, Senior Economist at PropTrack.
Ms Creagh said that homeownership has declined over the years, with the PropTrack Housing Affordability Index showing that households with median income can now afford just 13% of homes sold across the country.
For lower-income earners, it’s even worse—they can hardly afford any.
Rising house prices and reduced affordability have delayed home ownership.
Census data shows that homeownership has decreased with almost every successive generation since 1947–51, and younger groups are less likely to “catch up” and buy a home as they age.
As a result, many households that might have once bought a home are now renting.
At the same time, renters face the most challenging conditions in at least 17 years, according to the PropTrack Rental Affordability Report.
Over the past four years, rental prices surged by 42% in capital cities and 41% in regional areas.
These rapid increases have far outpaced household income growth, leading to higher rent-to-income ratios.
Consequently, the share of affordable rentals has declined.
Pressure on the rental market
Ms Creagh highlights that despite a slowdown in rental price growth this year, it remains strong.
PropTrack’s data showed that in the year leading up to March 2024, national median advertised weekly rents rose by 9.1% or $50, reaching $600 per week.
This growth was fueled by capital city markets where median rents hit $625, up 4.2% over the quarter and 13.6% over the year, explains Ms Creagh.
With rental costs soaring, even median-income households struggle to afford rentals.
A household earning $110,000 per year could only afford 30% of advertised rentals on realestate.com.au, assuming they spend 25% of their pre-tax income on rent.
In Sydney, the most expensive rental market, this share drops to just 16%.
Lower-income households face even tougher competition.
A household earning $49,000 per year (the bottom 20%) could afford just 1.3% of rentals advertised in March 2024.
The picture isn’t much better for those earning $67,000 (the bottom 30%), who could only afford 3.4% of rentals.
To afford even one-third of the rentals, these households would need to spend more than 40% of their income on rent.
What’s behind the crisis?
Ms Creagh commented that the demand for affordable rentals has created intense competition, especially as higher-income earners opt for cheaper properties and regions.
This increased competition is pushing lower-income households out of the rental market, as they’re left with fewer options.
Adding to the pressure, rental prices in smaller capitals and regional markets have surged since the pandemic began.
Perth saw a 76% increase in rents since 2020, equating to a $275 per week increase.
Brisbane and regional Queensland experienced similar trends, with rental prices rising by 50% and 55% respectively.
Addressing the rental market crisis
The grim reality is that the rental crisis doesn’t have a quick fix.
While Commonwealth Rent Assistance can temporarily alleviate rent increases, a long-term solution requires improving rental availability.
The National Cabinet has set a target to build 1.2 million well-located homes by 2029, but we’re not on track to meet this goal.
Ms Creagh further commented:
“Given these crisis conditions, it’s clear that more affordable and available rentals are essential, especially for lower-income households who can barely afford to rent.
The focus should be on increasing the supply of social housing and exploring other strategies to alleviate rental market challenges.
These include supporting first-time home buyers, better utilizing spare rooms, and encouraging downsizing among those with homes that are too large for their needs.”
While rental price growth may slow, the underlying issue of limited availability and affordability remains.
Addressing it will require a collective effort and innovative solutions to ensure a more equitable rental market for all Australians.
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