The second release of Australia’s Rental Affordability Index reveals that low-income households in Australia are paying between 50% and 85% of their income on rent.

It is generally accepted that a household is in housing stress if it pays more than 30% of its income on rent. 

The latest results reinforce calls for policy reform to address rental and housing affordability. The Labor party is proposing sweeping changes to negative gearing and capital gains tax if it wins at the 2 July poll, and has said it will consider changes to rental laws across the country.

But many voices in the real estate industry claim that changing the current negative gearing arrangements will decrease investor support for housing, which will reduce supply, putting even greater pressure on renters.

Adrian Pisarski, Executive Officer of National Shelter, said the latest index suggests that many rental households are falling into poverty, and are being pushed to suburban fringes.

"Australia’s lowest income households – those on around $500 a week – are paying up to 85% of their income on rents. Middle-income households are also falling into housing stress as high rents chew up incomes that aren’t keeping pace with rising housing costs,” Pisarski said. 

“Low and moderate income households are being forced out of inner-city areas into fringe suburbs where there are fewer jobs, less infrastructure such as transport, and fewer opportunities, which is only entrenching their disadvantage,” he said.

Ellen Witte, an Associate at SGS Economics & Planning, said rental unaffordability had started to intensify from the early 2000s in Queensland and New South Wales. “This coincided with the 50% reduction in the capital gains tax in 1999 and the fact that, for the first time in decades, new housing stock was falling behind demand,” said Witte. 

Economist Saul Eslake noted that in 1991-92, first-home buyers each accounted for about 17% of the total housing market. “By the current financial year, however, the share of total housing lending going to first-time buyers is just 11% per cent, while the share going to investors rising to 46%,” Eslake said. 

Witte said 35% of households are now renting, with many struggling to make ends meet. “Single income households are the worst off,” she said. 

Andrew Cairns, Chief Executive Officer of Community Sector Banking, which helped fund the report, said the nation had to wake up to the rental crisis. 

“There is a dire need for innovative financial models to support more affordable housing and we’re calling on governments, companies and philanthropists to collectively use their power to create sustainable solutions now,” he said.

Sydney is the least affordable metropolitan area in Australia, though affordability has stabilised in recent years. 

In Brisbane, rental affordability has worsened over the past two years, the only city to record such a result, mainly because incomes have fallen.

In Perth, rents are acceptable, with affordability improving over the past two years.

In Adelaide, rents are ‘moderately unaffordable’, with a slight improvement in rental affordability over the last two years.

In Hobart, rents are ‘moderately unaffordable’. After Sydney, Hobart is the least affordable city in Australia, due to lower incomes and high rental yields. Though unaffordability rose slightly, pockets of Hobart became more affordable. 

The Rental Affordability Index was created by National Shelter, Community Sector Banking and SGS Economics & Planning to measure rental affordability in Australia’s capital cities. The RAI doesn’t include data for Victoria, because rental bond data isn't available. The most recent index includes data from the December 2015 quarter, as well as data going back to 1996.

See also:

Changing negative gearing would impact rents

Mum and Dad investors are the lifeblood of Australia's rental accommodation