Housing affordability

Access to good quality, affordable housing is fundamental to wellbeing. It can help reduce poverty and enhance equality of opportunity, social inclusion and mobility (Gurran et al. 2021; Maclennan et al. 2019). Affordability is important for both Australians wanting to buy a home and for those renting. Many factors influence the supply, demand and cost of housing across the country, including Australia’s growing and ageing population and government policies (AIHW 2021; Burke et al. 2020; Gurran et al. 2021).

Housing affordability typically refers to the relationship between expenditure on housing (prices, mortgage payments or rents) and household incomes (Thomas & Hall 2016). Home ownership and housing tenure and Housing assistance are related to housing affordability.

How is housing affordability measured?

Measuring housing affordability is not straightforward. A household’s financial situation, the overall demand in the housing market and housing tenure type (whether a household is seeking to rent, is renting, is looking to buy or is a home owner with or without a mortgage) all influence individual housing affordability (Senate Economics References Committee 2015). The simplest measure of housing affordability compares housing costs to gross household income.

How much do we spend on housing?

In 2017–18, 11.5% of households spent 30% to 50% of gross income on housing costs with another 5.5% spending 50% or more (ABS 2019). These proportions have increased from 9.2% and 4.6% respectively since 1994–95 (Table 1).

Table 1: Housing costs as a proportion of household income, 1994–95, 2005–06 and 2017–18

Per cent of income spent on housing costs	1994–95 %	2005–06 %	2017–18 %
50 or more (more likely to be in financial stress)	4.6	5.1	5.5
30–50	9.2	11.4	11.5
25–30	5.8	7.0	7.6
25 or less (less likely to be in financial stress)	80.3	76.5	75.3

Notes:

1. Excludes households with nil or negative income.

2. Estimates presented from 2007–08 onwards are not directly comparable with estimates for previous cycles due to the treatment of incomes. See ABS 2019 for more details. 

Source: ABS 2019.

The proportion of household income spent on housing costs in Table 1 does not consider that high-income households may choose to spend more than 30% of their household income on housing. Their higher income means they have sufficient income after housing costs to avoid financial stress (AHURI 2018; Rowley et al. 2015).

By contrast, low-income households (lowest 40% of household income distribution) are more likely to lack the resources to deal with financial impacts arising from critical life events and/or housing market factors, often leading them to need additional housing assistance (AIHW 2021).

Housing stress among low-income households—the 30/40 rule

The 30/40 housing stress rule focuses on low-income households. These are defined as lower-income households (lowest 40% of income; see glossary) that spend more than 30% of gross household income on housing costs. They are considered to be in financial housing stress (Rowley et al. 2015; Yates 2007).

Over 1.0 million low-income households were in financial housing stress in 2017–18, based on the 30/40 rule (ABS 2019). Households with low income in the private rental market were more likely to be in housing stress, spending on average 32% of income on housing costs, compared with home owners with a mortgage (29%) or home owners without a mortgage (6.0%) (Table 2). Of household compositions, lone person households on average spent the highest proportion of income on housing costs.

Table 2: Proportion of household income spent on housing costs (lower-income households only), by household composition and housing tenure type, 2017–18

Household composition		Housing costs as a proportion of gross household income
	Owner without a mortgage	Owner with a mortgage	Private renter
Family households
Couple family with dependent children	4.1	28.5	26.9
One parent family with dependent children	4.5	29.7*	33.8*
Couple only family	5.6	31.8	33.9
Couple family with non–dependent children	4.4	23.9	25.7
Multiple family households	3.5	19.2	20.7*
Non-family households
Group households	6.7*	33.5*	38.1*
Lone person households	8.4	38.6	44.4
All households	6.0	28.6	31.9

* Estimate has a high margin of error and should be used with caution.

Notes

1. Due to limitations of housing costs information, care should be taken when comparing costs of different tenure and landlord types.

2. Housing costs as a proportion of gross household income is the sum of housing costs of a group divided by the summed gross weekly income of that group in households.

Source: ABS 2019.

Geographic variation

Housing costs and incomes varies across Australia, meaning housing affordability differs within and between states and territories and among housing tenure types (for example, home owners with a mortgage or renters).

Housing costs

In 2017–18 (Figure 1):

• housing costs as a proportion of income for all households were highest in Queensland (14.8%) and lowest in Tasmania (11.7%)
• for homeowners with a mortgage, housing costs were highest in Victoria (16.7% each) and lowest in the Australian Capital Territory (14.3%)
• for all renters, the highest housing costs were in New South Wales (21.4%). The lowest costs were in the Northern Territory at 15.7% (ABS 2019).
   

Rental stress among low-income households

For low-income households in the private rental market, the proportion in rental stress (based on the 30/40 rule) varies between the capital cities and the rest of the states and territories. The gap between these areas has increased over time (ABS 2019) (Figure 2):

• In 2007–08, 38.5% of low-income households in greater capital city areas and 29.5% of low-income households in the rest of the states and territories were considered to be in rental stress.
• In 2017–18, 47.8% of low-income households in greater capital city areas and 35.6% of low-income households in the rest of the states and territories were considered to be in rental stress.
   

Rental affordability index

The rental affordability index (see glossary) is a price index for housing rental markets across geographical areas of Australia, calculated using median incomes. A rental affordability index score of 80–100 represents unaffordable rent (that households spend 30 percent or more of their income on rent), a score between 100 and 120 represents moderately unaffordable rent, a score between 120 and 150 represents acceptable rent and a score greater than 150 represents affordable rents (SGS Economics and Planning 2020).

In general, rental affordability index scores are worse for metropolitan areas compared with the rest of the state or territory. As at June 2020:

• Hobart was the least affordable metropolitan area in Australia
• Greater Perth was the most affordable metropolitan area in Australia
• Greater Sydney and Greater Melbourne improved in affordability from the previous year
• Regional Tasmania was the least affordable of the rest of states and territories
• Regional Western Australia was the most affordable of the rest of state areas (Table 3).

Very low income households continue to face unaffordable rent in most capital cities (Hulse and Nygaard 2020).

Table 3: National rental affordability index summary by metropolitan areas and rest of states and territories, June 2020

Region	Rent affordability index	Proportion of household income spent on rent	Relative unaffordability
Greater Sydney	126	24	Acceptable rents
Rest of New South Wales	124	24	Acceptable rents
Greater Melbourne	140	21	Acceptable rents
Rest of Victoria	121	25	Acceptable rents
Greater Brisbane	129	23	Acceptable rents
Rest of Queensland	123	24	Acceptable rents
Greater Perth	145	21	Acceptable rents
Rest of Western Australia	155	19	Affordable rents
Greater Adelaide	114	26	Moderately unaffordable rents
Rest of South Australia	136	22	Acceptable rents
Greater Hobart	96	31	Unaffordable rents
Rest of Tasmania	114	26	Moderately unaffordable rents
Australian Capital Territory	119	25	Moderately unaffordable rents

Note: Data for the Northern Territory are not available.

Source: SGS Economics and Planning 2020.

Experience of renting in the private rental market

The experience of tenants in the private rental market is increasing in importance as more households are renting, and for longer periods. The proportion of Australian households renting has increased, from 22% (1.5 million households) in 2006 to 27% (2.1 million households) in 2016 (ABS 2019). Some household demographic factors, household composition factors and personal factors that affect the demand for private rental housing include:

• households renting longer before having children (Hulse et al. 2012)
• growth in international students and migrants (Hulse et al. 2012)
• decreasing transition from renting to home ownership, particularly among younger age groups (Wilkins & Lass 2018).

Many renters find their housing to be insecure, of poor quality and unaffordable. In 2018, 44% of renters were concerned that a request for repairs could result in an eviction and 68% were worried they would face rent increases if they complained about the low quality of their housing or asked for repairs (CHOICE et al. 2018).

Many leases in Australia last for one year and some for just six months or less. This results in tenants moving more frequently than home owners. By contrast, Denmark, Germany, and the Netherlands have indefinite and fixed-term leases where it is difficult to terminate the fixed-term lease without the tenant’s permission (CHOICE et al. 2017). In Australia in 2018:

• 29% of renters were living on a periodic agreement (an agreement where the fixed-term has expired or no fixed term is specified) or rolling lease.
• 51% of renters were living in a home that is in need of repair.
• 43% of all renters were finding it difficult to get by on their current income.
• 28% of renters have previously owned property and moved back into the private rental market (CHOICE et al. 2018).

Households experiencing rental stress and/or unable to access the private rental sector may be at risk of homelessness (AIHW 2020). Further, households with low income may find it difficult to compete with higher-income households in the private rental market and may therefore seek assistance with housing costs or to rent a social housing property. See Housing assistance for more information.

Renters experiences in the private rental market and COVID-19

Although the true effects of COVID-19 pandemic are still emerging, analyses based upon a report conducted in mid-2020 showed that there was widespread impact on the experiences of Australian renters in the private rental market. The report indicated that peoples employment, ability to pay rent, living environment and risk of eviction were affected (Baker et al., 2020a). Since the beginning of the pandemic in 2020:

• Just over 63% of renters experienced changes to their employment, including reduced hours and/or income, reduced income and temporary lay-off.
• Around one-third experienced worse living circumstances including difficulty paying rent and/or bills.
• About 25% of renters skipped meals to save money.
• Since the start of the pandemic, over 5% reported that they had received an eviction notice (Baker et al. 2020b).
• Around 17% reported that their rent became unaffordable (Baker et al. 2020a). 

Several changes in the Australian housing market can be linked to the onset of the COVID-19 pandemic in early 2020. The private rental market was especially affected during 2020 where there have been dissimilar trends between Perth and the eastern capital cities, regional areas and inner cities, and units and houses (Pawson et al. 2021).

Several changes have occurred in the private rental market due to the pandemic including:

• an increase in the supply of rental properties in some locations
• decreasing rents in inner city areas
• changes in housing preferences.

The private rental market and COVID-19

Increase in supply

Prior to the COVID-19 pandemic, the size of the private rental market increased from 24% of all households in 2009-10 to 27% in 2017-18 (Pawson et al. 2021). Since the COVID restrictions were introduced, the supply of long-term rental accommodation increased due to the transition of accommodation in the short-term market and newly completed dwellings becoming available. In the future, some of these dwellings may transition back to the short-term market due to the increase in domestic tourism and business travel (Evans et al. 2020).

Building completion

Prior the COVID-19 restrictions, from 2013-14 to 2015-16, the majority of new dwellings that were built in Sydney, Melbourne and Brisbane consisted of flats, units and apartments rather than separate houses. These were largely built in the middle and inner part of these cities (ABS 2021a). In 2020, the supply of these rental properties increased, especially in high-density areas, as new buildings were completed (Pawson et al. 2020)

Changes in visitor and international student numbers

As a result of international border closures, from January to December 2020, international visitor numbers decreased by 89%. With decreases in international tourism, many short-term rental accommodation dwellings such as Airbnb were moved into the long-term rental market, increasing the supply of rental accommodation (Pawson et al., 2021). For example, Airbnb accommodation decreased by 14% in Sydney and 22% in Hobart and Melbourne from March and April 2020 (Buckle et al. 2020; Pawson et al. 2021).  

There was also a decline the number of international students arriving in Australia. Only 230 students arrived in Australia in March 2021; a decrease of around 60,100 students compared with March 2020 (ABS 2021b). Since international students are more likely to live in inner cities and in apartments than domestic students, the rental market in metropolitan areas of capital cities were more affected, especially in Sydney, Melbourne and Brisbane (Pawson et al. 2021).

Decreases in rental prices

With an increase in the availability of rental properties in some capital cities, there was a corresponding decline of median rents for inner city apartments. In north and west Melbourne, for example, median rents declined around 5% between quarters one and three of 2020. Sydney experienced declines of up to 10%. Inner city high-density areas were more affected, especially in Sydney, Melbourne and Hobart (Buckle et al. 2020; Pawson et al. 2021).

The impact of COVID-19 on outer metropolitan and regional areas

Due to the movement of people to outer metropolitan and regional areas, a number of outer metropolitan and regional areas have experienced a decrease in the supply of accommodation in the private rental market. There has also been an increase in the demand of accommodation in the private rental market in these areas (Pawson et. al. 2021). This has led to increases in prices of dwellings in these regions. This can be attributed to significant changes in housing preferences, with more Australian’s preferring to live in larger dwellings that are better suited for working from home and leisure activities (Stone et al. 2020a, 2020b).

The private rental market and housing affordability

A decline in the cost of rent does not make rents more affordable for all Australians since affordability is based on household income. The income of renters has decreased more than rental prices since renters have been more affected by the pandemic than homeowners. From March to June 2020, housing cost fell by 0.5% while the income of renters decreased by 5%. By comparison, housing costs decreased by 5% and incomes fell by 0.2% for homeowners with a mortgage (Pawson et al. 2021).

Where do I go for more information?

See Housing assistance for more information on this topic. Also see:

• Housing Assistance in Australia
• Housing data dashboard
• Australian Bureau of Statistics (ABS) Housing Occupancy and Costs 2017–18

References

ABS (Australian Bureau of Statistics) 2019. Housing occupancy and costs, 2017–18. Canberra: ABS.

ABS 2021a. Building Activity, Australia. Canberra: ABS.

ABS 2021b. Overseas Arrivals and Departures, Australia. Canberra: ABS.

AHURI (Australian Housing and Urban Research Institute) 2018. Mortgage stress, rental stress, housing affordability stress: what’s the difference? Melbourne: AHURI. 

AIHW (Australian Institute of Health and Welfare) 2021. Housing assistance in Australia. Cat. no. HOU 325. Canberra: AIHW.

AIHW 2020. Specialist homelessness services annual report. Cat. no. HOU 322. Canberra: AIHW.

Baker, E. and Daniel, L. (Eds.) 2020a. Rental Insights: A COVID-19 Collection. The Australian Housing and Urban Research Institute Limited, Melbourne.

Baker E, Bentley R, Beer A & Lyrian D 2020b. Renting the time of COVID-19: understanding the impacts. AHURI Final Report No.340. Melbourne: AHURI.

Buckle C, Gurran N, Phibbs P, Harris P, Lea T & Shrivastava R 2020. Marginal housing during COVID-19. Final Report No. 348. Melbourne: AHURI.

Burke T, Nygaard C & Ralston L 2020. Australian home ownership: past reflections, future directions. AHURI Final Report No. 328. Melbourne : AHURI.

CHOICE, National Shelter and NATO (National Association of Tenant Organisations) 2018. Disrupted: The consumer experience of renting in Australia. CHOICE, National Shelter and NATO.

CHOICE, National Shelter and NATO 2017. Unsettled: life in Australia’s private rental market. CHOICE, National Shelter and NATO.

Evans R, Rosewall T & Wong A 2020.The Rental Market and COVID-19. Bulletin – September 2020. Australian Economy. Reserve Bank of Australia.

Gurran N, Hulse K, Dodson J, Pill M, Dowling R, Reynolds M & Maalsen S 2021. Urban productivity and affordable rental housing supply in Australian cities and regions. AHURI Final Report No. 353. Melbourne: AHURI.

Hulse K, Burke T, Ralston L & Stone W 2012. The Australian private rental sector: changes and challenges. AHURI Positioning paper No. 149. Melbourne: AHURI.

Hulse K & Nygaard C 2020. Rental Insights: A COVID-19 Collection: Perceptions of PRS affordability in Melbourne and Sydney. Baker E & Lyrian D (Eds). Melbourne: Australian Housing and Urban Research Institute (AHURI), pages 37–39.

Maclennan D, Randolph B & Crommelin 2019. Strengthening Economic Cases for Housing Policies. Sydney: City Futures Research Centre UNSW Built Environment.

Pawson H, Martin C, Sisson A, Thompson, S, Fitzpatrick, S. & Marsh, A 2021. COVID-19: Rental housing and homelessness impacts – an initial analysis. ACOSS/UNSW Poverty and Inequality Partnership Report No. 7. Sydney.

Rowley S, Ong R & Haffner 2015. Bridging the Gap between Housing Stress and Financial Stress: The Case of Australia. Housing Studies, 30 (3): 473-490.

Senate Economics References Committee 2015. Out of reach? The Australian housing affordability challenge. Viewed 21 May 2021.

SGS Economics and Planning 2020. Rental Affordability Index: December 2020 key findings. Canberra, Hobart, Melbourne and Sydney: SGS Economics & Planning.

Stone W, James A, Parkinson S & Rowley S 2020b. How might COVID-19 change what Australians want from their homes? The Conversation 17 September, 2020. Viewed 20 May 2021.

Stone W, Rowley S, Parkinson S, James A & Spinney A 2020a. The housing aspirations of Australians across the life-course; closing the ‘housing aspirations gap’. AHURI Final Report No. 337. Melbourne: AHURI.

Thomas M & Hall A 2016. Housing affordability in Australia. Parliament of Australia. Viewed 23 January 2019.

Wilkins R & Lass I 2018. The household, income and labour dynamics in Australia survey: selected findings from waves 1 to 16. Melbourne: Melbourne Institute: Applied Economic & Social Research, University of Melbourne.

Yates J 2007. Housing affordability and financial stress. NRV3 Research paper 6. Melbourne: AHURI.