This was published 1 year ago
$400 a week for a flat that smells of old milk: The tsunami coming for renters
Being a renter in Australia has never been more difficult, thanks to record low vacancy rates and skyrocketing rents. But it’s also becoming increasingly difficult to be an investor.
By Rachel Clun and Shane Wright
The six months Emersyn Wood spent searching for a home was a period of chronic stress.
Her search started in Sydney’s inner west but later widened out, and she was forced to lift her budget from $250 to $350 a week. Even then, the options were limited, and terrible.
“Most of them were very gross,” the 21-year-old says. “Even if it was like $400 … you would go to an inspection and it smells like old milk or smells like pee.”
Finding a rental property in Sydney was a period of chronic stress for student Emersyn Wood.Credit: Nikki Short
“I was like, ‘OK, this is kind of disgusting.’ But I got to a point where [I thought] maybe I would have to put up with it.”
Being a renter in Australia has never been more difficult, thanks to record low vacancy rates and skyrocketing rents.
The entire rental market is in serious trouble, and that’s also because it is increasingly difficult to be an investor. But without more “mum and dad” investors or an influx of larger institutional funding, as well as improvements to rental security, the rental crisis will only get worse and continue to fuel class divides.
“The gap between rich and poor is going to grow, and it’s largely going to grow between those who have a home and those who don’t,” says the Grattan Institute’s director of economic policy, Brendan Coates.
About a third of Australian households rent, and the number is growing. Renters are also becoming older and wealthier as the great Australian dream of home ownership moves further from reach.
Gianni la Cava, research director for think tank e61, says renting is seen as a perfectly acceptable way to live in many countries, but not here.
“Renting seems to be seen as something inferior in Australia. There’s just a real focus on owning a house,” he says.
That might be because for many people, renting is inferior.
A recent report by online property settlement platform PEXA and property business Longview found Australia is one of the worst countries in the developed world to be a renter, due to insecure tenure and an inability for renters to make the house a home, through having pets or making minor alterations.
Renting is not just insecure and unaffordable – for many, just finding a property to lease is increasingly difficult. Even some federal politicians, despite their salaries and clout, are not immune to those struggles.
Kylea Tink, the independent federal member for North Sydney, has been searching for a rental home for herself and her three children all over her electorate, but says there are few properties on the market and the ones that are available are eye-wateringly expensive.
“It’s pretty soul-destroying,” she says. “I’ve been looking from Chatswood, to Longueville, to Greenwich, you name it. I’m very open to the opportunities of where to go, but there just doesn’t seem to be the market supply there.
“And it’s not just me, there are tens of families lining up, going through these properties, trying to see if they’re going to be places that they want to help continue to raise their family.”
The proportion of households that rent is growing, and it is growing across all age groups, according to the last census, while the proportion of people buying homes falls.
Nearly 28 per cent of people aged 45 to 54 rent today, compared with fewer than 20 per cent in 2001. Among those aged 55 to 64, 21.6 per cent are renters, compared with 15.7 per cent more than two decades ago.
The proportion of renters is swelling because more people are being priced out of home ownership, while fewer people can access social and affordable housing.
While the PEXA and Longview report focuses on private rentals, it notes the chronic shortage of social housing is adding to pressures.
Social housing made up 6 per cent of all homes in 1996, but now makes up 4 per cent, according to the Give Me Shelter report from business-led advocacy group Housing All Australians.
The group says this lack of affordable housing could cost taxpayers $25 billion a year through increased spending on health, policing and lost education and productivity because critical workers will not be able to find adequate accommodation anywhere near work.
The lack of social housing has forced more people into the private rental market, leading to a rapid rise in rents and a dramatic constriction of supply as renters compete for properties. Over 2022 rents grew by 4 per cent, the biggest rate in a decade.
This year, rental inflation has reached 4.8 per cent, according to the Australian Bureau of Statistics measure, and skyrocketing increases in asking rents – Domain data shows that over the year to March, asking rents for units have jumped by 24 per cent in Sydney and 23.1 per cent in Melbourne – mean renters will face higher prices for some time to come.
This is also pushing more renters into rental stress, spending 30 per cent or more of their income on housing. According to the National Housing Finance and Investment Corporation, more than a third of renting households – about 331,000 households – are now at that crisis point.
For low-income renters, the problem is even worse. Two-thirds of those households spend 30 per cent or more of their income on rent, according to PEXA and Longview.
Despite the soaring rental prices, the market is also dysfunctional for the ordinary Australians who make up the bulk of the country’s landlords. Most of them only own one or two properties, says Pexa chief economist Julie Toth.
“They’re not particularly experienced, and it’s not necessarily their main income or profession; it’s a hobby or sideline,” she says.
There is a cultural perception that property will always be safe, Toth says, but the return on investment is not as bulletproof or guaranteed as investors generally think.
That feeds into the insecurity inherent in renting. If those investors need access to money for something else, Toth says, their funds are not liquid and they would need to sell the investment property to get cash, creating more turnover and uncertainty in the rental market.
“Half of all investment properties are taken in or out of the rental market within five years. So that’s another source of insecurity,” Toth says.
Again, Australia is unusual here. In other countries, institutional investors such as retirement funds make up the bulk of landlords, says Housing Industry Association chief economist Tim Reardon.
“If we look overseas, in France, around about 97 per cent of rental accommodation is provided by institutional investors such as superannuation companies. In the US that figure is about 87 per cent. In Australia, we’re very close to zero,” he says.
“It’s evident that there is a problem there that we’re not attracting enough investment into building residential homes.”
Institutional investors such as super funds might be dissuaded from investing in rentals due to the poor returns and minimal incentives on offer.
PEXA and Longview’s recent research also found that the rental market was not functioning very well for landlords and most of them would get better returns if they put their money into superannuation.
It seems some prospective investors are now getting cold feet. The number of loans for investment property purchases in January was 45 per cent lower than the number secured at the peak in March last year, according to the Bureau of Statistics.
CoreLogic’s head of residential research, Eliza Owen, says that’s largely because the rapid rise in interest rates over the past year has substantially increased mortgage costs, while over the same period, property values have fallen.
“Even though rents have risen, mortgage costs for investors have risen even more,” she says.
Looking at median dwellings, weekly mortgage repayments have gone from being roughly on par with median rents in September 2020, to being about $174 more expensive per week by February 2023, according to Owens’ CoreLogic analysis.
Larger investors are also deterred from entering the rental market because the tax incentives are set up to attract individual investment rather than larger companies or funds, Owens says. Some of the tax parameters around options like build-to-rent developments, including high land taxes, may not make the projects viable.
All of that has left Australia with a vacancy rate that continues to plumb new lows and forces people like Ariana Luther into the precarious situation of couch-surfing at a friend’s place for two weeks because 10 inspections a week for two months were not enough to secure a rental room.
Ariana Luther ended up couch-surfing while she looked for a rental property.Credit: Luis Ascui
Luther, 23, eventually found a place in Melbourne’s West Footscray, but until she did she had to split her possessions between her parents’ place in Geelong and a friend’s house in Melbourne’s western suburbs.
“It was very mentally taxing having to move all my things multiple times,” she says. “That was really frustrating.”
There’s no sign of any improvement in renting any time in the near future.
Recent analysis from the Reserve Bank found rapidly rising rents and ultra-low vacancy rates would remain at crisis levels for years. It also noted the public housing shortfall had become more acute in recent years, with the number of households on waiting lists for housing nearly doubling since 2016.
Greens housing spokesperson Max Chandler-Mather says it is not sustainable for governments of any level to say there is nothing they can do about the housing crisis.
“There is a tsunami coming,” he says. “People are already having serious financial issues, and if what’s predicted to happen next year happens in terms of even faster rent increases than have occurred over the last 24 months, governments have to acknowledge that what is currently a serious housing crisis will become a full-blown social crisis.”
With Sarah Keoghan, Najma Sambul
NEXT: How the housing industry boomed into an intergenerational problem
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