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Renters are facing a “diabolical situation” as unit rents rise more than seven times as fast as wages, and experts warn there is little prospect of relief on the way.
Asking rents across the capital cities rose 26.1 per cent for units over the year to June, Domain data shows, soaring above the 3.6 per cent rise in the ABS wage price index over the 12-month period.
Median asking rents for houses in the capitals rose by 11.5 per cent over the year, more than three times faster than wages.
Westpac senior economist Matthew Hassan said tenants faced a dire rental market caused by a shortage of housing.
“It’s a pretty nasty situation for renters, particularly those that are on low or fixed incomes, it’s a disaster,” he said. “There’s not many options available for people as well. It’s the pointy end of a pretty bad shortage of housing that we’re finding at the moment.”
Record migration and a decline in the number of people per household during the pandemic, as people sought more space, had increased demand for rental properties, Hassan said, while new housing supply had declined due to high building costs and rising interest rates.
Rents had skyrocketed as a result, Hassan said, and vacancy rates were only capturing properties which were listed briefly when they changed hands, as very few rentals were left sitting empty.
“Across the capital cities [the vacancy rate is] sub 1 per cent,” he said. “We’re at what I call frictional vacancy rates, which only captures the properties that are vacant when people are moving across properties.”
The parallel cost of living crisis was exacerbating the issue, Hassan said, and the lower levels of building approvals and completions meant there was little hope of a supply side solution.
“It’s a really diabolical situation,” he said. “When we look ahead it’s hard to see anything fixing the situation. The obvious thing we need is additional rental supply, but there are long lags on supply response at the best of times, and at the moment, that seems to be taking longer.”
Better Renting executive director Joel Dignam said landlords were able to continue to increase rents, taking a larger share of renters’ income because they effectively had a captive market in a low-vacancy rate environment.
“Low vacancy rates mean landlords can charge more rent and there are little options for renters,” he said. “Housing is different to a lot of goods. You can’t opt out of the housing market. The potential for landlords to charge more for rents is greater than other services.”
Dignam said a cap on rent increases was the best way to protect renters, and pointed to the success of limits in the ACT, where landlords have to justify rent increases that are more than 10 per cent above the rate of rental inflation in the consumer price index.
Canberra house rents have dropped 2.2 per cent over the year, while unit rents held steady.
“I had hoped that the national cabinet would be more willing to act on rent increases, specifically,” he said. “A few years ago landlords didn’t really increase rents by 10 per cent. And governments unfortunately passed up the opportunity to deal with that [when we weren’t in crisis].”
Failing a cap on rents, Dignam was cautiously optimistic about proposed measures to increase housing supply, which is the favoured solution of most economists.
Fresh Economic Thinking chief economist Cameron Murray warned wage data did not directly show changes in total household income, which he viewed as more relevant to housing cost pressures.
“There’s no reason those things should be related because the wage price index is not a measure of household income,” he said, but rather a reflection of how wages for specific jobs have changed.
Renters are under pressure from a variety of market forces. Credit: Peter Rae
“It looks like everyone’s getting squeezed because wages have only gone up 3.6 per cent, but that’s not household income.
“Rent as a proportion of household incomes has actually been flat and in some cases declined [since 2017].”
Murray said this income growth wasn’t uniform, however, and renters who fled inner cities during the lockdown period were returning and those with growing incomes were able to replace tenants who could only afford COVID-era rents.
The speed of rent rises were creating a difficult environment for renters to navigate, he said.
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