The real forces driving Australia's rental crisis (2023)

Four. That was the number of available positions across Australia accessible to one person on JobSeeker, according to Anglicare Australia's 2023 survey of 45,895 listings. All four were for rooms in shared houses.

This "snapshot" was taken on March 17, before Treasurer Jim Chalmers passed the federal budget, raising the JobSeeker rate by $40 every two weeks, or $2.86 a day, and increasing rent support. Anglicare crunched the numbers to see how many people could pay rent as a result of this increase.

On Tuesday at the National Press Club, executive director Kasy Chambers presented the results: five. “Five out of 46,000. Nobody on government benefits fared any better,” he said.

Chambers further pointed out that it wasn't just welfare recipients who were priced out of the market. For the first time since Anglicare started taking snaps 10 years ago, he said: “A person working full-time on the minimum wage can afford less than 1 per cent of all rents. This is the national image."

The housing crisis directly affects the vast majority of Australians in one way or another. According to the 2021 census, only 31% own a home – up from about 43% in the mid-1990s. For this group, the home price declines of recent years are only paper losses. But even they feel it when they plan to renovate, exposing them to skyrocketing construction costs – up from about 12 percent last year.

Another 35 percent have a mortgage and are feeling the pressure of steep interest rate hikes to varying degrees, depending on the size and recent evolution of the debt. However, most, according to the Reserve Bank, are actually ahead of their repayments. Only a minority – mostly young families in recently purchased homes – are facing financial problems.

That's not to downplay their difficulties, but it's the third group of Australians, the roughly 31 per cent who are renters, who are really confused by the market. These people were the focus of the Chamber Press Club speech and this story.

The most recent national housing rent index from real estate analytics firm CoreLogic showed rents rose an average of 10.1 percent in April.

"Combined annual rent growth of 11.7% last year was a new record," the report said.

That is, well above the general inflation rate of 7%.

And the reason landlords get away with evicting tenants? It essentially goes back to the old law of supply and demand.

"In the four weeks to April 30, the capital's total rental property supply was 20.9% below last year's level at this time and 39.8% below the five-year average," CoreLogic notes.

The snapshot of Anglicare's places to rent was also its lowest ever: around 30 per cent lower than last years figures. Between 2018 and 2021, the number of rental properties available was consistently over 65,000.

Why so few vacancies?

If Opposition Leader Peter Dutton is to be believed, the reason so many Australians struggle to find rental accommodation is the same reason others struggle to buy a home: immigration. He hammered it hard in his budget reply.

"Amid a housing and rental crisis, the rate of immigration will increase by 1.5 million people in five years - the highest in our country's history and more than the population of Adelaide," he said. "Where will these people live without housing supply and infrastructure being addressed?"

"The Albanian government's approach to Greater Australia will exacerbate the cost of living and inflation crisis.

"It's the largest immigration wave in our country's history and it's taking place amid a housing and rental crisis."

Since then, Dutton has continued to blame immigrants for Australia's housing crisis at every opportunity.

His numbers are accurate, but his recitation is hypocritical. When in government, the coalition – and Dutton as responsible minister – also favored a Greater Australia. For the three years before the Covid pandemic, the former government guided net overseas migration to around 260,000 to 270,000 per year. In 2019, the last year before the pandemic, Australia's total population, made up of immigration plus natural increase, grew by about 1.5%.

But with the arrival of the virus, Australia's population growth virtually stopped as borders were closed to newcomers and those already here forced to leave. In 2020, the population grew by only 0.1 percent.

There are two important points to make here. First, without immigration, Australia would soon become a smaller, older and, by most analyses, poorer country. Without immigration, says Peter McDonald, emeritus professor of demography at the Australian National University, Australia's population would begin to shrink in about a decade, due to a fertility rate that has long been well below replacement levels. Second, the high figures for net overseas migration in this year's budget – 400,000 this year and 315,000 next year – amount to catch-up. After that, the numbers will go back to roughly what they were pre-Covid when Dutton's political side was in government.

Dutton has not suggested what level of immigration he would prefer.

He was accused of xenophobic dog whistling, a charge regularly leveled against Conservative parties since Opposition Leader John Howard warned in 1988 that Asian immigrants threatened Australia's social cohesion. illiterates and countless refugees took Australians' jobs and that allowing medical evacuations of asylum seekers from offshore detention on Manus Island and Nauru would bring rapists, murderers and pedophiles into the country.

However, just because Dutton is on form doesn't mean his latest claims won't resonate with parts of the electorate. Or that he is completely wrong about the pressures of population growth.

Minutes from the Reserve Bank's April meeting indicated some concern among board members that high population growth "could put significant pressure on existing Australian capital, especially housing, which in turn would be reflected in higher consumer prices'.

However, they also noted that "higher immigration could reduce wage pressures in industries that had experienced significant labor shortages."

That is, higher immigration may be somewhat inflationary in the short run, but the alternative may also be inflationary if labor shortages lead to higher costs.

This dilemma is particularly apparent in the housing sector, where the pandemic has exacerbated the shortage of skilled workers. As a result, trading incomes grew rapidly during the pandemic and post-pandemic housing boom – even before inflation took off and wages for most Australians remained stagnant.

During that time, says Tom Devitt, senior economist at the Housing Industry Association, "qualified transaction prices rose about 7.5 percent annually through mid-2022."

Since the middle of last year, trade labor price inflation has slowed dramatically but, he says, "are still up 21 percent since the end of 2019."

"The lack of skilled workers is still quite severe. not as bad as last year and the return of overseas workers will likely continue to help this moderation through the rest of the year.

“It's a bit of an awkward situation that we need foreign workers coming back to fill some of these skills shortages, but at the same time they might need somewhere to live. It's really a push and pull situation."

As for the effect more immigration will have on homelessness, McDonald says it's less than the numbers suggest. For example, the impact of returning foreign students is often overestimated, as large numbers of foreign students are often concentrated in shared houses.

And in any case, says Hal Pawson, professor of housing research and policy at UNSW Sydney's City Futures Centre, an increase in net migration only exacerbates an already existing problem.

“It is fair enough to say that the current situation has been exacerbated by the rise in immigration, but the claims often made that immigration is the dominant factor affecting house prices and rents are clearly false. They have been definitively disproved by the experience of the pandemic. We were already in the midst of a house price boom … during the period when we had negative immigration,” says Pawson.

The real causes are much more complex and long-term, he says. The seeds of the current crisis were planted some 40 years ago.

Negative gearing, the financial leverage that allows an investor to claim tax relief for interest payments and other costs associated with buying real estate, is a factor, though it's hardly new, Pawson says. "The rules that allow housing equipment have been in the tax system since the 1920s," he points out.

It was the combination of the downturn with other changes in the 1980s and 1990s that really fueled the real estate market.

"One was the liberalization of mortgage finance, which made it much easier to get a loan to buy investment property, which was quite difficult before the 1980s."

Then, in 1999, the Howard government changed capital gains tax, which had been introduced 14 years earlier by the Hawke government as an equity measure. The tax rate was halved and other changes were made, allowing the rich to convert higher taxable income into lower-taxed capital gains.

"It was a very important moment," says Pawson.

He regretted that Labor abandoned the "very moderate" proposed reforms to negative tax relief and capital gains tax relief that were needed for the 2016 and 2019 elections.

“It was very sad that in the post-mortem after the 2019 election, they felt that everything that was put in that manifesto had to go. I think they threw the baby out with the bath water.

"I think the question is whether the reform of the negative rate, the property capital gains tax ... was a significant factor preventing Bill Shorten from becoming prime minister," he says.

Pawson also mentions another major, regressive change during the Howard years to Commonwealth funding arrangements, so that states "were no longer expected to use it to invest in new housing - they were allowed to use it as they saw fit essential".

The devastating effects of these changes, created in the ideological belief that the best way to provide housing was to induce the private sector to do most of it, continue to play out.

Just this week,De Sydney Morning Heraldit said the previous Liberal National government in New South Wales offloaded 4,858 homes in the state between 2011 and 2023. Despite promises that the proceeds would be used for more public housing, only 4500 homes were built.

The story is really the same everywhere: governments have effectively withdrawn from public housing. They built less and sold more.

As Kasy Chambers reminded her Press Club audience, before the shift the government "lived to fund and build homes in response to affordable housing".

“This provided secure housing for low-income workers and freed up affordable rental housing for middle-income earners. It also ensured that regional communities got the homes they needed, rather than being left at the mercy of whether builders found it profitable to build there.

"Since the 1980s, we have shifted that spending to Commonwealth Rent Assistance, negative gearing and capital gains tax benefits."

That and subsidizing home buyers, which only fueled demand and drove up prices, making housing more expensive for everyone, especially those in the rental market.

"We are now spending more per capita on housing through these payments than ever before, and yet housing has by no means been less affordable," Chambers said.

"Everyone can see that this approach is not working. The shortage of affordable rental housing has increased since 1996, even though every region in Australia has an oversupply of housing.'

And that's what makes it special, says Maiy Azize, spokeswoman for the Everybody's Home housing campaign. "We've never had as many houses per capita as we do now. We build between 160,000 and 240,000 new homes in Australia every year."

That's more than enough to absorb population growth, he says.

And they are increasingly large and empty houses.

The average Australian home has more than three bedrooms and newer homes have more than older ones. Meanwhile, the number of people living there is falling, from about 2.9 in the mid-1980s to 2.5. The pandemic contributed to this as more people worked from home and needed more space. Tens of thousands of spare parts became home offices.

On the night of the 2021 census, more than 10 percent of homes, more than a million homes, were empty. There were many reasons for this: some had been sold but the new owners had not yet moved in, some were being renovated, some were owned by people traveling or abroad and some were simply uninhabitable. And some houses were "landed," that is, held vacant until they could be sold or rebuilt.

But many, Azize says, were second homes for wealthier Australians.

"Certainly, wealthier people take up a lot more space, live in smaller households, buy holiday homes," he says.

And if they're not staying in those vacation homes themselves, those people are increasingly putting them on the short-term rental market through Airbnb and similar companies.

Airbnbs like Airbnb, Azize says, "make a big difference in certain locations."

As a result, we are seeing moves by some state and local authorities in this country – as elsewhere in the world – to limit the supply of short-stay accommodation in desirable locations and/or tax-vacant homes.

However, such measures to improve long-term rental offers have so far been piecemeal. Azize says it's not clear they'll do much to raise the amountaffordablelong stay.

“There's been a big assumption that's driven housing policy in Australia for decades, that if we just have enough supply ... it's going to put downward pressure on rents. That was the economic orthodoxy,” he says.

There are undoubtedly supply issues, mostly related to getting to the right places, says HIA's Tom Devitt. And so is the 'nimby' problem, often voiced by local governments whose residents don't want more density, let alone social or affordable housing in their neighbourhood.

“Planning frameworks often limit heights and densities in existing suburbs. They make it very difficult to build enough housing, and that just puts more and more pressure on urban sprawl and by extension on the necessary infrastructure."

The problem of housing, and in particular the problem of affordable rent, is therefore much more complex than Peter Dutton would have us believe. And tackling it, many analysts suggest, will require far more from the government than Jim Chalmers provided in his budget.

As we have already seen, the small increase in Social Security benefits will not make rents more affordable. Nor, as CoreLogic noted in its analysis, will the modest increase in Commonwealth Rent Assistance (CRA) — the government's biggest single housing program. The 15 percent increase in the top rate starting in September will cost $2.7 billion, but it only adds up to a $31 increase in the CRA in two weeks, CoreLogic says.

“While this at least acknowledges the challenges that renters face… imputed rental values ​​suggest that the national median rent rose the equivalent of $113 every two weeks in the year in April alone.

“Under the budget proposals, some households receiving CRA will also get a boost from a $40 increase in JobSeeker payments from September, further adjustment of support payments and relief on utility bills. However, with housing supply initiatives not planned until 2024 and no cap on rent increases for private landlords, there is a greater risk that these income payments will put further pressure on rents.

Simply subsidizing tenants so they can pay higher rents on the private market has not been proven to work. And the need is growing.

It's time, say tenant advocates - and one political party, the Greens - for the government to get more directly involved in providing social and affordable housing. As before.

“We have a shortfall of 640,000 social homes and they will not be built unless the government takes money from the budget and spends it. There are about 400,000 people on waiting lists across the country. But a lot of people just don't get on waiting lists because they've been on it for 10 years,” said Wendy Hayhurst, chief executive of the Community Housing Industry Association.

“We see social and affordable rental housing ... simply as an extension of the social security system, so a service provided to the very, very needy who have no other choice.

“We do not recognize or believe that for a much larger proportion of the population than those currently housed in public and community housing, it is virtually impossible to find quality housing offered by the market.

"We could improve the private rental market, but we're going to be left with a fair number of people – I'd say probably 10 per cent but potentially more – people who at some point would not be able to find satisfactory housing in the private market, whether it's home ownership or for private hire.”

Which finally brings us to the current government's humble plan to actually build homes, the Housing Australia Future Fund. The proposal would invest $10 billion in the markets, with an estimated annual return of $500 million to be channeled into a social and affordable housing subsidy.

Through this program, the Albanian government claims to be able to build 30,000 social and affordable houses in five years – a number that rises to 40,000 according to the national housing agreement reached with the states.

The proposal is now stuck in the Senate, blocked by the Conservatives – for no apparent reason, although they have long preferred to leave it to the private market – and the Greens, who say it is inadequate. They claim the fund has no bottom and can underperform depending on the state of the stock market, capping spending at $500 million. They are open to negotiations, but support spending 10 times more.

That $5 billion seems like a huge sum until you consider that the administration is preparing to proceed with the third phase of tax cuts, the cost of which has now reached $313 billion, according to a new analysis by the independent House Budget Office. a decade. Half of that will come from people earning more than $180,000 a year.

You can build many houses for a fraction of that money. The question is, would they rather finance vacation homes for the wealthy or affordable vacation homes for the struggling?

This article first appeared in its print versionThe Saturday paperon May 20, 2023 as "rent".