09 April 2024
AUTHOR: UniSA Professor of Property and Housing Economics Chris Leishman
It’s well known that Australia is in a severe housing crisis, which has been accelerating since the onset of the pandemic. Recently, we have come to see a shift in the focus: private renters are doing it particularly hard.
Private renters have typically been seen as marginalised because they are often ‘would be’ homeowners who have been priced out of home ownership or are still saving for their first home deposit. A combination of working hard and saving for a long period of time meant many private renters would fulfil their aspirations at some point and live out the ‘Australian dream’.
That narrative has changed.
No longer are private renters ‘wasting money’ by paying rent while they save for a home loan deposit – the situation is now more acute. Many renters are struggling to find a property to lease despite earning good income.
The AHURI (Australian Housing and Urban Research Institute) research centre at UniSA recently explored an innovative new dataset which focuses mainly on the conditions that people face in the private rental sector. Their analysis of the Australian Rental Conditions Survey found the sector is made up of several groups, dominated by five distinct household ‘types’.
Some renters have no choice and others are using the sector more tactically. Their motivations, socioeconomic, demographic and income patterns are quite different and, ultimately, this affects their satisfaction and stability.
The Drifters: Making up around 25% of the private rental sector, these households have been at their address for less than 12 months and have high levels of dissatisfaction with the property, neighbourhood and landlord. These are the most marginalised tenants. They move frequently, arguably have unrealistic expectations, and pay higher rents overall, after allowing for property, amenity and neighbourhood factors.
The Settlers: Making up 25% of the sector, these tenants have been at their address for five years or more and tend to have high levels of satisfaction with property, landlord and neighbourhood. This is the group we hear about least – people who are perfectly happy renting and believe they have a good neighbourhood, property and landlord.
The Nurtured: At 20% of the sector, these tenants have no formal lease arrangement at all but instead the arrangement flows from an understanding or a mutual perception of trust between a renter and landlord. This also includes periodic tenancies where a fixed term lease officially ended months or years ago but occupation has continued. Tenants in this category often have high levels of satisfaction.
The Builders: In 2019–20, 15% of renters were renting because they were building a home. This increased to 20% of renters in 2021 (perhaps driven by HomeBuilder incentives). Their length of stay increased from 12 months pre-pandemic to 18 months. This shift alone is enough to explain a decline in rental vacancy rate from 4.5% to about 1%. A larger number of households are building homes and supply chain difficulties in the industry is expanding completion times.
The Rentvestors: This group comprises people who purchase a home in a suburb they can afford, while renting a property in a typically more affluent suburb. Sometimes rentvestors also rent a larger property than they could have afforded to buy. This type of renter tends to be in an upper income bracket and has high levels of mobility and higher levels of neighbourhood and dwelling satisfaction.
So, what are the lessons from this?
The evidence suggests that the nub of the rental crisis could be traced back to a cohort of fairly well-off people who are either priced out of home ownership, are renting while building a bigger home or are choosing to rent for career or lifestyle reasons.
But the issue is broader. Like ‘private renter’, the terms ‘housing crisis’ and ‘homeowner’ are so general that they mask the co-existence of many different population cohorts, each with quite different exposures to the housing crisis. For example, ‘homeowner’ means an older household with a large, low-density property on which the home loan was paid in full long ago. It can also mean a more recent buyer who entered the market at the height of the boom and is heavily exposed to interest rate fluctuations. These examples are at extreme ends of the scale, but they illustrate the potential dangers of over-generalisation.
In Australia, as in most OECD countries, far more attention has traditionally been paid to the problems that exist in home ownership than in private rental markets. This has changed recently and it’s likely that rental markets will continue to receive more attention.
Nearly one third of Australian households are renting – and the data suggests this will continue to grow as housing becomes less accessible.
Perhaps it is important to recognise that a middle-income household ‘priced out’ of home ownership becomes a ‘high income’ household in the income distribution of the rental sector.
Perhaps it is time for our politicians who are interested in fixing the housing crisis, to think again about ‘Middle Australia’. Failing to do so not only misses the struggling middle, but it leads to a transmission of more problems to other, lower income, parts of the housing system.
About the author:
Professor Chris Leishman is a housing economist and one of Australia’s leading housing researchers. He leads the property discipline at the University of South Australia and is best known for his work on modelling housing supply and housing need. Prof Leishman works extensively with government at national, state and local levels to help make a difference to people either directly, or through influencing policy change.
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