Eventually we’re going to have to face we’re in a crisis.
When is the rental market going to roll over?
Rents have been growing at a blistering pace since Covid. Take a look at the chart. Australia has never seen anything like it:
The hard news I have to deliver is that I can’t see this retracing any time soon… if ever. Not as long as the supply-demand dynamics remain as they are. (Double-bad news: they look like they’re actually going to get worse.)
But this isn’t just an inconvenience for renters. It’s life changing. New analysis shows that almost a million renters are at risk of being displaced from their communities.
Now PropTrack has released its Rental Affordability Report, which shows that “Australia’s rental affordability is at its worst level on record”.
PropTrack found that “households earning the median income of roughly $111,000 can afford to rent the smallest share of properties since 2008 when records began, driven by surging rents in recent years”.
“From financial year 2018-19 to today, national median household income has increased 19%. Since the pandemic, median rental prices grew 38% across the country”.
PropTrack also shows that only 39% of rental properties advertised on realestate.com.au from July to December 2023 were affordable across the country for a typical-income household spending 25% of their income:
The funny thing about being an economist for as long as I have is that you begin to see the stories that people are hiding. Take a look at the above chart. Why are we talking about the 30th percentile? We never talk about the 30th. It’s always the 25th.
But what happens if you look at the 25th? Well, from the chart above, the number goes to zero.
Which is to say that for the bottom 25% of Australians – the bottom quarter!!! – there are no affordable rentals on offer anywhere in the country.
That’s not a problem. That’s a crisis.
And the crisis has a name: Homelessness.
Analysis by Suburbtrends reckons that up to 800,000 renters are at risk of being ‘displaced’.
More than 800,000 renting households across the country could be priced out of their current suburbs, displaced by wealthier tenants who are themselves moving into more affordable areas as rents soar to new highs, new data shows.
Analysis by Kent Lardner, director of Suburbtrends also finds that those in the lowest socio-economic groups, represented by over 150,000 households – are bearing the heaviest burden.
“The mounting pressure from the relentless increases in rents are prompting wealthier households to seek out cheaper rental homes, crowding out those in the lower socio-economic ladder,” he said.
“The intense competition for a limited pool of rental properties and a dire shortage of affordable housing options mean this problem will ripple out to the poorest suburbs, leaving those in the lowest socio-economic households under the most strain over the medium to long term.”
Yep, this is how it works. People move out of their suburbs to where they can afford.
But at some point, there’s nowhere left to go. After the bottom rung of the ladder, you’re in the pool.
This is a crisis.
The property market is in desperate need of support.
But I wouldn’t be holding my breath. We’ve been talking about a housing crisis for decades.
Rental prices will keep heading north, and more and more Australians will end up in the pool.
Surely we’ll have to do something about it soon?
DB