Rental affordability index
The rental affordability index (see glossary) is a price index for housing rental markets across geographical areas of Australia, calculated using median incomes. A rental affordability index score of 80–100 represents unaffordable rent (that households spend 30 percent or more of their income on rent), a score between 100 and 120 represents moderately unaffordable rent, a score between 120 and 150 represents acceptable rent and a score greater than 150 represents affordable rents (SGS Economics and Planning 2020).
In general, rental affordability index scores are worse for metropolitan areas compared with the rest of the state or territory. As at June 2020:
- Hobart was the least affordable metropolitan area in Australia
- Greater Perth was the most affordable metropolitan area in Australia
- Greater Sydney and Greater Melbourne improved in affordability from the previous year
- Regional Tasmania was the least affordable of the rest of states and territories
- Regional Western Australia was the most affordable of the rest of state areas (Table 3).
Very low income households continue to face unaffordable rent in most capital cities (Hulse and Nygaard 2020).
Table 3: National rental affordability index summary by metropolitan areas and rest of states and territories, June 2020
||Rent affordability index
||Proportion of household income spent on rent
|Rest of New South Wales
|Rest of Victoria
|Rest of Queensland
|Rest of Western Australia
||Moderately unaffordable rents
|Rest of South Australia
|Rest of Tasmania
||Moderately unaffordable rents
|Australian Capital Territory
||Moderately unaffordable rents
Note: Data for the Northern Territory are not available.
Source: SGS Economics and Planning 2020.
Experience of renting in the private rental market
The experience of tenants in the private rental market is increasing in importance as more households are renting, and for longer periods. The proportion of Australian households renting has increased, from 22% (1.5 million households) in 2006 to 27% (2.1 million households) in 2016 (ABS 2019). Some household demographic factors, household composition factors and personal factors that affect the demand for private rental housing include:
- households renting longer before having children (Hulse et al. 2012)
- growth in international students and migrants (Hulse et al. 2012)
- decreasing transition from renting to home ownership, particularly among younger age groups (Wilkins & Lass 2018).
Many renters find their housing to be insecure, of poor quality and unaffordable. In 2018, 44% of renters were concerned that a request for repairs could result in an eviction and 68% were worried they would face rent increases if they complained about the low quality of their housing or asked for repairs (CHOICE et al. 2018).
Many leases in Australia last for one year and some for just six months or less. This results in tenants moving more frequently than home owners. By contrast, Denmark, Germany, and the Netherlands have indefinite and fixed-term leases where it is difficult to terminate the fixed-term lease without the tenant’s permission (CHOICE et al. 2017). In Australia in 2018:
- 29% of renters were living on a periodic agreement (an agreement where the fixed-term has expired or no fixed term is specified) or rolling lease.
- 51% of renters were living in a home that is in need of repair.
- 43% of all renters were finding it difficult to get by on their current income.
- 28% of renters have previously owned property and moved back into the private rental market (CHOICE et al. 2018).
Households experiencing rental stress and/or unable to access the private rental sector may be at risk of homelessness (AIHW 2020). Further, households with low income may find it difficult to compete with higher-income households in the private rental market and may therefore seek assistance with housing costs or to rent a social housing property. See Housing assistance for more information.
Renters experiences in the private rental market and COVID-19
Although the true effects of COVID-19 pandemic are still emerging, analyses based upon a report conducted in mid-2020 showed that there was widespread impact on the experiences of Australian renters in the private rental market. The report indicated that peoples employment, ability to pay rent, living environment and risk of eviction were affected (Baker et al., 2020a). Since the beginning of the pandemic in 2020:
- Just over 63% of renters experienced changes to their employment, including reduced hours and/or income, reduced income and temporary lay-off.
- Around one-third experienced worse living circumstances including difficulty paying rent and/or bills.
- About 25% of renters skipped meals to save money.
- Since the start of the pandemic, over 5% reported that they had received an eviction notice (Baker et al. 2020b).
- Around 17% reported that their rent became unaffordable (Baker et al. 2020a).
Several changes in the Australian housing market can be linked to the onset of the COVID-19 pandemic in early 2020. The private rental market was especially affected during 2020 where there have been dissimilar trends between Perth and the eastern capital cities, regional areas and inner cities, and units and houses (Pawson et al. 2021).
Several changes have occurred in the private rental market due to the pandemic including:
- an increase in the supply of rental properties in some locations
- decreasing rents in inner city areas
- changes in housing preferences.
The private rental market and COVID-19
Increase in supply
Prior to the COVID-19 pandemic, the size of the private rental market increased from 24% of all households in 2009-10 to 27% in 2017-18 (Pawson et al. 2021). Since the COVID restrictions were introduced, the supply of long-term rental accommodation increased due to the transition of accommodation in the short-term market and newly completed dwellings becoming available. In the future, some of these dwellings may transition back to the short-term market due to the increase in domestic tourism and business travel (Evans et al. 2020).
Prior the COVID-19 restrictions, from 2013-14 to 2015-16, the majority of new dwellings that were built in Sydney, Melbourne and Brisbane consisted of flats, units and apartments rather than separate houses. These were largely built in the middle and inner part of these cities (ABS 2021a). In 2020, the supply of these rental properties increased, especially in high-density areas, as new buildings were completed (Pawson et al. 2020)
Changes in visitor and international student numbers
As a result of international border closures, from January to December 2020, international visitor numbers decreased by 89%. With decreases in international tourism, many short-term rental accommodation dwellings such as Airbnb were moved into the long-term rental market, increasing the supply of rental accommodation (Pawson et al., 2021). For example, Airbnb accommodation decreased by 14% in Sydney and 22% in Hobart and Melbourne from March and April 2020 (Buckle et al. 2020; Pawson et al. 2021).
There was also a decline the number of international students arriving in Australia. Only 230 students arrived in Australia in March 2021; a decrease of around 60,100 students compared with March 2020 (ABS 2021b). Since international students are more likely to live in inner cities and in apartments than domestic students, the rental market in metropolitan areas of capital cities were more affected, especially in Sydney, Melbourne and Brisbane (Pawson et al. 2021).
Decreases in rental prices
With an increase in the availability of rental properties in some capital cities, there was a corresponding decline of median rents for inner city apartments. In north and west Melbourne, for example, median rents declined around 5% between quarters one and three of 2020. Sydney experienced declines of up to 10%. Inner city high-density areas were more affected, especially in Sydney, Melbourne and Hobart (Buckle et al. 2020; Pawson et al. 2021).
The impact of COVID-19 on outer metropolitan and regional areas
Due to the movement of people to outer metropolitan and regional areas, a number of outer metropolitan and regional areas have experienced a decrease in the supply of accommodation in the private rental market. There has also been an increase in the demand of accommodation in the private rental market in these areas (Pawson et. al. 2021). This has led to increases in prices of dwellings in these regions. This can be attributed to significant changes in housing preferences, with more Australian’s preferring to live in larger dwellings that are better suited for working from home and leisure activities (Stone et al. 2020a, 2020b).
The private rental market and housing affordability
A decline in the cost of rent does not make rents more affordable for all Australians since affordability is based on household income. The income of renters has decreased more than rental prices since renters have been more affected by the pandemic than homeowners. From March to June 2020, housing cost fell by 0.5% while the income of renters decreased by 5%. By comparison, housing costs decreased by 5% and incomes fell by 0.2% for homeowners with a mortgage (Pawson et al. 2021).
See Housing assistance for more information on this topic. Also see:
ABS (Australian Bureau of Statistics) 2019. Housing occupancy and costs, 2017–18. Canberra: ABS.
ABS 2021a. Building Activity, Australia. Canberra: ABS.
ABS 2021b. Overseas Arrivals and Departures, Australia. Canberra: ABS.
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AIHW (Australian Institute of Health and Welfare) 2021. Housing assistance in Australia. Cat. no. HOU 325. Canberra: AIHW.
AIHW 2020. Specialist homelessness services annual report. Cat. no. HOU 322. Canberra: AIHW.
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