Many tenants have fallen into "rent stress" over the first half of 2021 as they spend a substantial part of their incomes on rent.
ME Bank's latest study found over two-thirds of renters are in rent stress over the six months to June 2021.
A common way of measuring rent stress is if a tenant spends more than 30% of their pre-tax income on rent.
Interestingly, the average proportion of household income spent on rent for the period was 41%, which represents an 8% increase.
The level of rent stress over the six-month period was higher than the final six months of 2019, before the COVID-19 pandemic.
ME Bank consulting economist Jeff Oughton said the worrying levels of rent stress was brought about by the continued tightening of rental markets that has been pushing rent prices up.
“Renters are now facing some of the biggest rent hikes we’ve since the global financial crisis," Mr Oughton said.
A recent CoreLogic report showed the annual pace of gains in national rents soared to 7.7%, the highest since 2008. Darwin and Perth were the tightest rental markets and have seen substantial hikes in rents recently.
Mr Oughton said incomes were not able to keep up with the pace at which rents are going. Some of the most vulnerable tenants are those in the lower income (below $40,000 per annum) and below average income ($40,000 to $75,000 per annum) brackets.
“While wage gains, on average, have picked up slightly from the historical lows recorded at the onset of the pandemic, government income support has gradually unwound, and rental moratoriums have ended,” he said.
“We may see more renters facing hardship as lockdowns continue, particularly among low-income, low-saving households reliant on government support.”
The most vulnerable segments also include single parents, couple with young children, and retirees. During the period, more women (75%) were in rent stress than men (60%)
Cheaper to buy than rent?
The study also indicated the share of renters in rental stress during the period was actually bigger than the proportion of struggling mortgage holders.
In fact, only 42% of borrowers reported setting aside more than 30% of their household income on mortgage repayments.
Mr Oughton believes the current conditions are more favourable to buyers than renters.
“A recovery in economic activity, very low interest rates and the deferral of loan repayments by some households have helped contain mortgage stress,” he said.
“Furthermore, households are well ahead of their minimum repayments and have significant net equity or savings in their home loans.”
A separate study by CoreLogic found that servicing a mortgage is cheaper than paying rent on 36.3% of properties.
CoreLogic head of residential research Eliza Owen said the low interest rate environment is still conducive to better mortgage serviceability in many parts of the country.
“The analysis is a good reminder for renters to weigh up housing costs and savings, to see if it is time for a change in tenure,” Ms Owen said.
Photo by Kelly Lacy from Pexels
