Surging rents fuelled by housing supply shortages have pushed rental affordability to its worst level in 17 years and will keep pressure on inflation for some time yet, a new report warns.
Lower-income households are being hit hardest by rising rents, and the poorest fifth – those earning $49,000 per year or less – would need to pay more than 25 per cent of their pre-tax income for any advertised rental, data company Proptrack said. It defines affordable rent as accounting for less than 25 per cent of a household’s pretax income.
The rate of rent increases was expected to remain high in an undersupplied housing market, making it even tougher for the Reserve Bank to bring inflation back to the middle of its target range, Proptrack senior economist Angus Moore said.
‘‘The rapid pace of rent growth we’re seeing has been adding to inflation, particularly since rents are quite a sizeable part of the CPI basket,’’ Mr Moore said. ‘‘Given that advertised rent growth has been quite strong, and tends to lead growth in average outstanding rents, we’re likely to continue to see rents making a solid contribution to inflation for a little while yet.’’
Rent inflation hit a decade high of 7.8 per cent last year and has remained above 7 per cent since, Australian Bureau of Statistics data show. This has meant rent’s proportion of the CPI basket grew 6.03 per cent in January, an increase of 28 basis points from the same time last year.
Rents surged 11.5 per cent in calendar year 2023 after growing 15.6 per cent in 2022, Proptrack data show. To start 2024, national median advertised rents have risen to $600 a week from just over $400 in 2020.
Rents at the most affordable end of the market have increased by 43 per cent in the past five years, compared to 30 per cent for the most expensive rentals. This equates to a 10th percentile rental going from $280 per week in 2018-19 to $400 today.
Mr Moore called for more rental support for low-income renters such as Commonwealth Rent Assistance, following similar calls from developers, think tanks and housing groups in recent months.
‘‘Without support, renting would be impossible for many of these households given their incomes,’’ he said.
Grattan Institute’s Brendan Coates in January urged the Albanese government to increase funding for the rent assistance scheme by 22 per cent, on top of a 15 per cent rise in last year’s budget.
It’s not just the poorest households struggling with affordability, as median-income households could only afford four out of 10 advertised rentals compared to being able to afford 60 per cent of listings three years ago.
NSW was the least affordable state for renters. Rental affordability has deteriorated significantly in NSW over the past three years and is at its lowest-ever level after median rents rose to $700 a week. As a result, a median-income NSW household can only afford to rent about three out of 10 properties advertised.
This was followed by Tasmania and Queensland. In Tasmania, a household earning median income for Tasmania – equivalent to approximately $79,000 per year – could only afford to rent one in five advertised rentals, the lowest share of any state.
Queensland rents, meanwhile, have surged 45 per cent in three years, leading to a median income household for the state – about $107,000 – only being able to afford three of 10 properties advertised across the state.
Victoria was the most affordable state when comparing rents to residents’ incomes, due to its rents declining the most during the pandemic lockdowns and more homes being built relative to other states. A median-income Victorian household can afford more than 50 per cent of listings.