The Australian rental market has experienced significant challenges in recent years, particularly during and after the COVID-19 pandemic. Factors such as increased immigration, low vacancy rates, and the slow pace of housing construction have contributed to rising rental prices across the country. But what does this trend of rent prices reveal about rental affordability in Australia? In this article, we will explore the current state of the rental market, discuss its impact on living costs, and consider homeownership a viable long-term alternative.
A Look Into the Australian Rental Market
Nationwide, the proportion of households renting is rising. Between 1995 and 2020, this increased from 26 to 31 per cent. For the first time in over a decade, rental prices in Australia have grown faster than house prices. According to data from the Australian Bureau of Statistics (ABS), rental prices in the capital cities rose by 11.7 percentage points in the 12 months to March 2023, while house prices rose by 10.2 per cent. The price increases have come during rising inflation and high demand for rental properties. Rental vacancy rates have slightly eased in the June 2023 quarter, however, still at a low 1.2 per cent nationally.
Despite a temporary ease in the market, competition amongst prospective renters is only forecasted to worsen in the coming years.
A number of factors contribute to this, which include:
- Immigration and population growth
- Low levels of investment in housing construction
- High property prices
Some Australian capital cities have already earned a reputation for uncertain living affordability, and many have concerns about increased living costs. According to the key findings of SGS Economics & Planning in their November 2022 report, every capital city experienced a decline in affordability during that year. These economic consultants assert that housing costs that total 30 per cent of a household’s income have a rental affordability index (RAI) of 100. This number shows when households are at the critical threshold for housing stress.
Will Renting as a Lifestyle Cease To Be Viable?
The COVID-19 pandemic led many property investors to sell their assets to first-home buyers in favour of capital gains, resulting in fewer rental properties. In addition to this, due to increased immigration and population growth, competition among prospective renters has skyrocketed. These factors have led to a surge in rental prices, and individuals are discovering it to be increasingly hard to find places to live, particularly in metropolitan areas such as Sydney and Melbourne.
At the end of 2022, around 42 per cent of low-income households, defined by being in the lowest 40th percentile of household income earners, were found to be in rental stress. The percentage for NSW low-income households sits even higher at 47 per cent. In 2008, this statistic sat at a mere 35 per cent. While the nation’s RAI has managed to stay above 100, rental market trends will continue negatively affecting this figure and strain individuals’ quality of living. Until the rate of building infrastructure can keep up with the population growth, it’s unlikely that renting will remain sustainable.
Time to Rent or Buy?
Renters spend an average of 20 per cent of their income on housing costs. Sydney’s median house rent in June 2023 overtook Canberra as the most expensive capital city to rent a house in. The rent sits at $700 per week, compared to Canberra’s $675, an annual change of 12.9 per cent. In other capital cities, the rental rate is not far behind. Renters should expect to face challenges in the rental market within the coming years. As the population increases and immigration continues, the likelihood of rental costs decreasing is highly improbable because properties continue to be in short supply. But does this mean you should buy a home?
Is It Possible for Me To Buy a Home?
Owning a home is more achievable than you think. While it may not seem attainable if you are a single-income household earner, the Australian government introduced a policy allowing you to purchase a home with another individual who does not have to be your spouse. However, it is important to note that buying a home with others comes with its own risks.
If you are still uncertain about the affordability of buying a home, let’s look at the numbers.
First home buyers looking to purchase a home in NSW for $800,000 can purchase with as little as a 5 per cent deposit of the total property price. For illustrative purposes, our repayment calculator shows how much it would cost you on a weekly basis to own your home. At a 6 per cent interest rate, regular weekly repayments total $1,051 if you had a 30-year loan term.
You may not be at the life stage where homeownership seems feasible. However, owning your home is achievable. Read about your first home loan to learn more. Alternatively, you can fill out our contact form or book a call to discuss your next steps.