Rising costs and Financial Stress for Renter Households in Australia
The rental market in Australia has experienced significant growth over the past few decades, particularly in the eastern states, due to a decline in home ownership rates. Currently, around one-third of all households in Australia rent their homes, either in the private market or in public housing.
Renters typically have lower incomes, lower wealth, and are younger, which makes them more vulnerable to rising rents and broader cost-of-living pressures. Insecurity of tenure and the uncertainty of the rental market have been concerns for renters, as they often face short-term leases and may struggle to find affordable and suitable accommodation.
Over the past decade, rents have grown moderately, but this has been surpassed by the rise in wages and disposable income of households in the economy. However, the onset if the COVID-19 pandemic has resulted in a tightening of the rental market, leading to a significant increase in rents in many parts of the country. This has contributed to a deterioration in rental affordability and an increase in financial stress for some renter households. Community service providers have reported an increase in demand for financial assistance and counseling, primarily for renters.
The rise in consumer price inflation over the past year has affected the prices of most goods and services, which can impact renters more, as they are more likely to be lower income households. Unlike owner-occupiers, renters cannot easily switch to less expensive goods and services. Although social assistance payments are indexed to inflation twice a year, there is a lag in the effect of these payments. Rising interest rates have less of a direct effect on the net wealth of renters, but it can indirectly affect their cash flows, especially since renters tend to have lower incomes compared to owner-occupiers. Lower-income workers, which include many renters, are more exposed to changes in unemployment, hours worked, and wages, which can affect their ability to make ends meet.
The Australian government has implemented policies to address rental affordability, including providing rent assistance to lower-income households and increasing the supply of public housing. However, more needs to be done to address the challenges faced by renter households, particularly in the current tight rental market.
Source: https://www.rba.gov.au/publications/bulletin/2023/mar/renters-rent-inflation-and-renter-stress.html