Households who rent up from 25% to 30%

The proportion of households renting is on the rise, according to the SGS Economics & Planning's Rental Affordability Index (RAI) Report.

The share of households renting increased from 25% to 30% between 1995 and 2015, with rental affordability continuing to be a struggle for many, particularly older people on pension and individuals on Newstart.

During the same 20-year period, housing costs for renting households also increased relative to property owners. In fact, renters currently spend 20% of their income on housing costs, while owners with mortgages allot an average of 16%.

Also read: Will rent control solve unaffordability?

Costs drivers

The RAI report said a range of factors have driven the shift towards renting and increased rental costs.

“Since the introduction of the capital gains discount in 1999, which combined with negative gearing has dramatically increased the number of investors who compete with homeowners for available property, more households have been driven into the rental market,” the report said.

The low interest-rate environment also played its part, making lending more accessible to investors.

Vacancy rates also boosted rents, particularly in inner-city areas. For many investors, vacant properties are "still worth holding on to" and are often held on to for long-term capital gains, the report said.

Also read: Sydney sees biggest annual decline in rent prices

Most unaffordable cities

Greater Hobart remains the most unaffordable capital city to rent in. It is the only capital city where rental affordability for the average-income household has dropped below the critical threshold.

"This means that even average income household is now paying 30% of their income or more on rent. Although household incomes in Tasmania are significantly lower than the national average, rents are only marginally lower than mainland averages," the report said.

The table below shows the affordability index of metropolitan areas as of June 2019.

As indicated in the table above, Adelaide has become more unaffordable than Sydney. This is due to the city’s lagging income growth.

"While rental affordability in Sydney has seen improvement, the difference for very low-income households is negligible, and unaffordability remains severe," the study said.

Most affected households

"Untenable" is how the report described the rental situation for single Australians on Newstart. In order to live in any capital city area, Australians on Newstart need to pay over 77% of their income for rent.

This household segment faces the most significant financial challenge when looking to rent in metropolitan and regional areas.

"Rental stress pushes single persons on Newstart to the outer fringes of our cities, well away from opportunities to get them back into employment," the study said.

In fact, affordability has not improved for this segment as capital cities become significantly more costly.  

"Newstart payments are continually outpaced by rising rents and other increases in the cost of living. All cities have been ‘extremely unaffordable’, with Sydney being the worst, and changing little over this period," the study said.

Rental affordability is also "alarmingly poor" for single pensioners. Living in metropolitan areas would require them to allocate 50% of their pensioner's income.

Older Australians need help

Commenting on the findings of the study, COTA Australia chief executive Ian Yates said there is a need for an increase in accessible and affordable social housing homes close to transport and local communities.

"Older renters in Australia are among the most impacted by the lack of affordable and appropriate housing because they are living on a fixed income with limited earning potential and are entirely at the mercy of market forces and rental instability," Yates said.

To assist renters, Yates said the maximum Rent Assistance should be increased by 40%.

"Not only do older renters tend to have higher healthcare costs, they need to be close to their communities, transport and services to stay healthy and connected. With more people reaching retirement as renters, rent stress and homelessness will continue to grow. We cannot afford further inaction," he said.