Rising High-Income Renters Intensify Housing Affordability Crisis
The increasing presence of high-income earners in the rental market is intensifying competition for housing and exacerbating affordability issues, signalling deep-rooted systemic problems in the housing sector. According to a study by the Australian Housing and Urban Research Institute (AHURI), the proportion of higher-income households in the private rental market has significantly risen, from 8% in 1996 to 24% in 2021. Meanwhile, the number of lower-income renters has remained largely unchanged, underscoring the widening gap in housing accessibility.
This trend has been driven by a worsening in housing affordability, reaching its poorest state in over three decades, coupled with a long-term decline in homeownership rates. The PropTrack Housing Affordability Index reveals that a household earning the median income in Australia can currently afford only 13% of homes sold nationwide, with lower-income earners virtually priced out of buying a home. This shift is partly due to escalating house prices and declining affordability, which delay homeownership and force more individuals into the rental market.
Furthermore, census data highlights a decreasing trend in homeownership rates across successive generations since the mid-20th century, with younger groups increasingly less likely to purchase homes as they age. This shift contributes to more people choosing or needing to rent for longer periods.
Rental markets have also experienced severe strains. PropTrack’s Rental Affordability Report indicates that renters faced the toughest market conditions in at least 17 years in 2023. Over the past four years, rental prices have surged by over 40% in both capital cities and regional areas since the onset of the pandemic. This rapid increase in rental costs has significantly outpaced household income growth, leading to a higher proportion of income being required to cover rent.
Despite a slight easing in rental price growth this year, the increases remain substantial. As of March 2024, the national median advertised weekly rent rose by 9.1%, reaching $600. This increase was particularly pronounced in capital cities, where median rents climbed to $625 per week. For a median household earning $110,000 annually, only 30% of advertised rentals are affordable, based on spending 25% of pre-tax income on rent, with even lower percentages in more expensive markets like Sydney.
The scarcity of affordable rentals is even more critical for lower-income households, who find almost no affordable options in current listings. Higher-income renters, with more financial flexibility, often opt for more affordable rentals in competitive markets, thereby intensifying the pressure on lower-income renters seeking similar housing.
This phenomenon has not only affected urban areas but also smaller capitals and regional markets, where rental prices have skyrocketed since the pandemic began. The ability to work remotely has prompted many to relocate to less expensive areas, maintaining strong population growth in these regions and further fuelling rent increases.
Significant rent hikes have been particularly notable in Perth, with a 76% increase since the pandemic’s start, and in Brisbane and regional Queensland, where rents have risen by 50% and 55% respectively. This disproportionate growth in cheaper markets has drastically reduced the proportion of affordable rentals available, underscoring the urgent need for policy interventions to address housing affordability and ensure equitable access to housing across income levels.
For more real estate news, click here.
