Real Estate News

A Brief Explainer On The Australian Rental Crisis Of 2022

Published 21st July 2022Updated 4th April 2023

a couple sitting on the floor of their rental apartment worried about rising rental prices

Australia is grappling with a nation-wide rental crisis that’s left the real-estate industry reeling. Furthermore, it's a crisis that seems to not make sense, given that over 500,000 individuals left the country in the wake of the pandemic. 

Experts believe this rental crisis has been a long time coming and say warning signs have gone unheeded by policy makers. Vacancy rates are hitting all time lows, and rents are sky-rocketing, leaving many families heavily impacted. 

How did we get here? Let’s take a closer look at Australia’s rental crisis, the causes, and how it’s affecting the territories.

But first...

Exactly how bad is the Australian rental crisis?

Data analysis carried out by Everybody’s Home campaign (a coalition of welfare, homelessness and housing organisations) showed just how hard it is for a young person to pay rent in any of Australia’s capital cities, much less purchase a home.

Researchers considered the average rent of a single bedroom in a two-bedroom apartment in the country’s capital cities. Then they cross referenced it with the weekly wage of an 18 year old,  Level 1 hospitality or retail worker, or Youth Allowance dependant. The findings were staggering.

Research concluded that the sampled demographic spent more than 30% of their income on renting just a single room - the absolute definition of housing stress. More worryingly, this also means that most young people, especially those who depend on Youth Allowance, are being pushed to the brink of homelessness. 

On the other end of the spectrum are Australia’s senior citizens, who were looking forward to spending their sunset years in the neighbourhoods they have lived in for decades. Sadly, they are now being given notice to leave. 

Rental subsidy schemes in some territories have reached their expiration date, and landlords have been forced to raise the cost of tenancy. With low vacancy rates and rental prices soaring, pensioners have nearly no options left. 

Many older tenants; even those with disabilities, have had to move distances as far as 60km away from their family and friends to secure rentals.

Australia’s rental crisis chain reaction

In March of 2022,  the number of people taking out new loans to invest in property had increased by 2.9% - a positive sign amid a bad situation. But these figures were far from where they needed to be to make a significant dent in the crisis.

According to finance and mortgage brokers, fewer investors are purchasing property overall. This in turn increases first home buyer activity, and results in rental prices climbing even higher. 

The higher rents will, needless to say, impact people’s ability to save for a home deposit and make it even harder, if not near impossible for first time home buyers to step into the market.

With fewer investors buying into the property market, it would inevitably lead to the decrease in the volume of available rental properties. It would also mean increased competition among potential renters for any available properties.

By June of 2022, new housing loans had fallen by 4.4%. 

The massive gap between the demand for rental accommodation and availability of property has seen rentals across Australia receiving record prices from potential renters, just so they can secure a tenancy.

Why is there a rental crisis and how did it get here?

With the rental crisis chain reaction setting off across Australia, it would be worthwhile to understand how the crisis deepened to such a critical extent. There’s more than meets the eye in this situation with decades of political and social inaction, coupled together with various other factors. Let’s take a look at just some of them.

  • Plummeting vacancy rates

    A recent study conducted by SQM Research showed vacancy rates have plummeted to a 16-year low across the country. Apart from Sydney (2.1%), Melbourne (2.7%) and Brisbane (1.1%), all other cities rated below 1%, indicating a severe lack of supply, despite the fact that Australia has witnessed major capital growth.

    Most experts agree that a balanced rental market has a vacancy rate between 2% and 3%. At this stage the balance between demand and supply is even and the rents remains stable.

  • Misconceptions about investors

    The vast majority of Australian real estate investors are simply looking for an easy retirement plan and not a luxurious lifestyle. Sadly, these investors are turning away from residential properties because of targeted political and social commentary portraying them as wealthy cash cows.

    Australia has 2.2 million investors and most of them are average income earners. An estimated ¼ of this figure are investors because they retained their first home as an asset, instead of selling or moving. Less than 10% of total investors own more than two investment properties. 

  • Impacts from taxes

    Legislation adopted in 2017 changed depreciation benefits for residential property investors by limiting their depreciation claim on “previously used” assets. 

    These assets are generally items that are not considered permanently attached to the property, like white goods, heat pumps, furnishings, blinds and carpeting. 

    The new legislation meant that investors could no longer claim depreciation tax deductions for these items under the Plant and Equipment (P&E) clause. This discouraged investors from residential properties, sending them towards commercial investments instead.

  • Deepening financial stress

    The free flow of available credit has a huge impact on property investment. After the Royal Commission into Banking and Finance, the rules around loan qualifications for investors were toughened. Subsequently, the Australian Prudential Regulation Authority (APRA) increased loan tolerance buffers from 2.5% to 3%. 

    Investors now had to prove they were able to service a loan at an interest rate 3% higher than what they were applying for, or risk being rejected. This has inevitably led to a lowered activity in investment. 

  • Legislation

    A national debate is underway for tenancy legislation to be reframed with more protection for tenants. Both VIC and NSW have already seen legislation changes giving tenants more control over their tenancy. Some of these protections include limits on rent increases on periodic leases, reduction in break-free fees, ‘as of right approval’ to make changes to the leased property and allowing pets.

    While these legislation changes provide long overdue protections for tenants in this crisis, they are also proving a challenge to landlords who find themselves in a tough financial situation or facing a problematic tenant. 

How has the rental crisis impacted Australian states?

No state has been safe from the effects of the rental crisis, with so many variables pulling Australia into a checkmate. Here’s some key insights on the rental crisis in each state. 

Rental crisis in WA

Residents in WA are experiencing very low rental vacancy rates and a social housing wait-list that is five years long. The rent crisis in Perth is peaking while other areas of WA are faring even worse, with Bunbury collapsing to 0.6% vacancy rate just months ago.

It was estimated that just 30 houses were left in Bunbury with a median rental price of $450 or below. Other areas including Busselton are seeing their vacancy rates flatline at 0%. The state housing market is facing severe stress as families fear becoming homeless. 

Rental crisis in SA

When it comes to affordable rental properties, South Australia’s jobseeker recipients, pensioners and minimum wage workers are nearly out of options. Research from the Real Estate Institute of Australia revealed that the rental crisis in Adelaide has reached severe levels. The real estate market is the least accessible of any Australian capital city with just 0.6% vacancy. 

Rental vacancies in SA dropped to a 16-year low this January, with 16,500 people on the wait-list for public housing, and a staggering number of families facing homelessness. 

Rental crisis in VIC

Like other states, VIC also faces a rental crisis. In some parts of Melbourne, the rental market completely dried up, leaving renters scrambling to secure tenancy amid rising rental costs. 

Both Cardinia Council and Sunbury areas have declining vacancy rates at 0.4%. Frankston, Casey, Kingston, Maroondah and Whittlesea are facing shortages with vacancy rates at 0.6% - 0.7%. 

Rental crisis in ACT

Canberra is turning out to be a nightmare for renters as vacancy rates fall and housing becomes more unaffordable. While residents expected to have an easier time house hunting this year, an influx of interstate locals has left everyone rushing to find a home. 

Canberra remains Australia’s most expensive city to rent in, and the high demand is pushing renters to offer well above the asking price. Warnings have been issued by The Real Estate Institute that the rent crisis will likely intensify once international students return and begin looking for housing options. 

Rental crisis in Tasmania

As rental rates soar in TAS, many people are reportedly living in tents as their only available housing option. Many residents have also reported that properties are rented out before they have had time to put in an offer.

An analysis of water usage data across TAS has indicated that there could be up to 2000 homes lying empty. The data also found that there were 192 vacant residential properties in Hobart City Council area, 115 in Glenorchy municipality and 256 in Launceston. 

There is speculation whether this could be due to incredibly high rental prices, or because investors are sitting on properties with the aim of selling them.

What does the rental crisis mean for landlords and investors?

While renters across the country are undeniably experiencing the worst effects of the rental crisis, landlords and investors have certainly seen better days. 

Australian bankers have remarked that an investor or landlord who owns an apartment has very few returns left after they pay strata levies, repairs and taxes. They argue that investors have been able to enjoy strong capital gains and that has fuelled their interest in the market so far. 

However, that dynamic is likely to shift as rising interest rates either lead to stabilizing or declining home prices. Invariably, this will lead to investors and landlords increasing their rents to make sense of their investment, with figures on track to reach a 10% hike nationally. More bad news for already burdened renters. 

Property investors have also started offloading their apartments, partly in response to eviction restrictions imposed during the pandemic that likely made investors feel real estate was not a winning bet.

The rental crisis is a sticky situation to navigate for investors looking to grow their portfolio amid Australia’s worst housing crisis. While there are some undoubtedly good opportunities available in the real estate market, as an investor it’s worth balancing out the social costs as well as the financial gains - or you might end up with an overinflated investment that is unaffordable to most of the rental market.

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