Is There a Housing Crisis in Australia?

The cost of living in Australia is steadily rising, and housing prices are following suit. But, is there really a housing crisis in Australia? And if so, what can be done about it?

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Dawn Teh

The cost of living in Australia is steadily rising, and housing prices are following suit. 

But it isn't just home buyers who are feeling the stress of housing insecurity.

For those renting, increasing home prices means rents are going up too and many aren't coping financially. 

News reports regularly surface of families being forced to live in caravans and increasing homelessness even amongst those who currently have a job.

But, is there really a housing crisis in Australia? And if so, what can be done about it? 

Let's take a closer look. 

Disclaimer: This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).

Australia's housing crisis in numbers

Homeownership may stay as a dream for many young Australians

Home ownership in Australia has been on a steady decline since the 2000s. 

A survey by The Household Income and Labour Dynamics in Australia (HILDA) showed that home ownership amongst 25–34-year-olds declined significantly from 52.2% to 29.2% between 1996 and 2014. 

At this point, many Australians (especially those in younger age groups) are giving up on owning homes and are forced to rent or move back in with their parents.

What's causing this dip? Part of it is due to changing lifestyle choices (e.g. staying single for longer). But other studies have found that a large part of this is due to rising real estate prices.

Unfortunately, even renting might not put an end to the worries of those seeking housing as the high cost of housing creates a domino effect on renters.

Rental properties are more scarce and unaffordable

As of May 2022, the national rental vacancy rate stands at 1% which is the lowest level in 16 years. 

Between June 2021 and June 2022, Australia saw rental prices rise at its fastest rate in 14 years. It went up by 9.1% amongst capital cities and 10.8% in regional areas. The median rental in Sydney currently stands at $643 a week.  

In terms of affordable rental, the statistics are even more dire. According to a rental affordability report published by Anglicare in April 2022, only 1.6% of rental properties in Australia would be considered affordable for a single person on minimum wage. 

These numbers alone are probably enough to indicate that there's definitely a housing and rental crisis in Australia.

But unfortunately, the issues don't stop there.

Modelling predictions made by the Australian Housing and Urban Research Institute (AHURI) in 2017 suggested that 1.3 million households in Australia were in housing need at the time. 

It's also estimated that this figure might rise to 1.7 million households by 2025. 

The institute defined housing need as: "the aggregate of households unable to access market-provided housing or requiring some form of housing assistance in the private rental market to avoid a position of rental stress."

When they broke things down by state, it was estimated that NSW had 373,000 households in housing need (with it possibly rising to 678,000 by 2025).

Similarly in Victoria, it's forecasted that housing need will rise from 291,000 to 462,000 from 2017 to 2025. 

Homelessness is on the rise

Another key metric reflecting the severity of the housing crisis is homelessness rates across the country. 

Between 2011 to 2016, the rate of homelessness increased from 47.6 people per 10,000 Australians to 49.8 people per 10,000. 

58% of homeless people are also 34 years or younger even though only 46% of Australians are in this age group.

1 in 5 homeless persons is also Aboriginal or Torres Strait Islander. 

Of all the states, NSW has the largest homeless population (it's also increasing at the fastest rate). The state faced a 37% increase in homelessness 

While official statistics about homelessness haven't been updated since 2016, Specialist Homelessness Services, reported that a third (32.3%) of its clients needing accommodation were not able to find housing in 2020-21. This was an increase from 30.2% in 2016-17.  

With the most recent round of interest rate hikes in October 2022, it's also expected that landlords will be passing on the burden of increased mortgage repayments to renters by upping rental payments.   

What is causing the housing crisis in Australia?

There are many factors contributing to the housing affordability crisis in Australia, but it generally comes down to a mixture of pricing and supply factors:

Increasing home prices means rent is going up too

According to a recent global report, Australia has one of the least affordable housing internationally with Sydney taking the second spot behind Hong Kong. There were several other Australian cities featured on this list too.  

A CoreLogic report states that property prices rose 24.6% between March 2020 (around the beginning of the pandemic) and February 2022 despite an initial dip. 

People's earnings are also not keeping up with this pace of increase. Wages only went up by 2.4% between March 2021 to March 2022 — 7 times slower than property prices. 

Even the first hurdle to owning a home (your house deposit) is enough to make the average Aussie feel priced out of the property market. 

The average deposit for an Australian home now sits at $199,560. That's significantly more than the average full-time salary which is currently around $90,000.  

Of course, these numbers don't tell the whole story. 

Housing prices vary widely from city to city, with some cities seeing much sharper increases than others. 

For example, the average price of a house in Sydney and Brisbane rose by 23.7% and 27.8% respectively between Dec 2020 and Dec 2022. 

Some have also blamed government policies around negative gearing and capital gains tax breaks as well as it promotes overinvestment (and ultimately price hikes).

Others suggest that zoning which restricts how many homes are built on each block contributes to housing supply issues. But this has been challenged by some experts

This rapid increase in housing costs is putting immense pressure on middle and low-income earners, many of whom are being forced out of the market altogether. 

And it's not just house prices that are getting more expensive. The cost of renting has also increased significantly, with it increasing by 11.8% between March 2020 to Feb 2022. The median rent across Australia is now $470 a week. 

The percentage of rental properties going for under $400 a week has also dropped from 41.8% last year to 19.3% in October 2022. The cities that recorded the largest declines in rental listings within this range were Melbourne, Adelaide, and Brisbane.

Not enough housing to meet demand

Lack of housing is an issue that's plagued Australia for the past 20 years. A 2021 report states that there are around 400 dwellings for every 1,000 people. This is amongst the lowest supply rates when compared to developed nations. 

In the few years leading up to the COVID-19 pandemic, the nation actually saw a pick-up in the construction of new housing. 

Pandemic impact on housing supply

Even though there was an issue with not enough new homes being built long before COVID-19 hit our shores, it certainly made the problem worse

There were supply chain disruptions, which meant that everyone from contractors to manufacturers were hit with limited supplies of building materials. There was also a labour shortage due to travel and movement restrictions. 

This has resulted in delays in home construction and a decrease in the overall supply of homes. 

Other causes

Some other factors that have led to the housing crisis include:

  • Natural disasters like floods and bushfires have destroyed homes and impacted incomes.
  • Reduced rental property investors. 
  • Not enough affordable housing with long waitlists. 
  • Some state and federal government schemes have ended (like the eviction moratorium).
  • Surge in the number of people looking for rental properties.

What is being done to solve the housing crisis in Australia? 

The Australian government is currently using various ways to provide more affordable housing. This includes:

Building more affordable public housing

Many experts have highlighted that one of the best long-term strategies for addressing the housing crisis is to build more affordable public housing. 

Public housing is subsidised by the government, making it more affordable for low-income families. 

In addition, it can be built quickly and efficiently, providing much-needed relief to families who are struggling to find a place to live.

It's estimated that if we decrease private market rents by 10%, it would reduce the number of low-income households experiencing housing stress by 8%. 

If private market rents can fall by 20%, the housing stress figure would reduce by 18%.

Plus, this doesn't only benefit those in lower income brackets. When you house more renters in affordable public housing, it frees up properties within the private rental market as well.  

The current Albanese Labour government has plans to create a $10 billion Housing Australia Future Fund which promises to build 30,000 new affordable housing properties within the first 5 years.

Government assistance for first home buyers

The Australian government offers a variety of assistance programs to help first-time home buyers purchase a home. 

Firstly, there's the First Home Owners Grant. It's a one-off payment provided by the government to help first home buyers looking to buy or build their first property. 

The First Home Loan Deposit Scheme allows eligible buyers to purchase a property with a deposit of as little as 5%. 

The government also offers the First Home Super Saver Scheme, which allows buyers to save for a deposit using their superannuation. 

Bear in mind that some of these schemes were set up by the federal government, but they may differ in how they're implemented in various states. 

You can check out our guide to all the first home buyer schemes available in Australia here for more detailed information. 

Commonwealth rent assistance

The Commonwealth Rent Assistance (CRA) is a form of financial assistance that is provided to eligible low- and moderate-income renters in Australia. This applies to those renting in the private market or community housing. 

To be eligible for the CRA, you must fulfil certain conditions. For example, you must be receiving certain types of government benefits. 

The current maximum payment ranges between $100-$150 a fortnight. The exact amount you'll receive depends on your family situation (e.g. single or couple).

CRA was recently criticised for being insufficient when compared to the median rent of $620 per week for houses and $525 for units in Sydney. It's estimated that one-fifth of low-income households may only be left with $250 a week after paying rent. 

Brendan Coates, who is the Grattan Institute economic policy program director, has advised that CRA payments should be increased by at least 40% to make any sort of impact on the lives of those under housing stress. 

What can you do if you're having difficulties affording housing

Here are some steps you can take if you're having trouble affording housing: 

  • Look for government assistance programs that can help with home ownership, rent, or mortgage payments. Most notable ones for first time home buyers include the first home owners grant and the first home super saver scheme which allows you to use superannuation to purchase a home. 
  • Talk to the landlord or mortgage company and see if there are any options for deferring payments or reducing the amount owed. 
  • Explore local state and community organisations that offer financial assistance for those struggling to afford housing. 

There's no question that Australia is in the midst of a housing crisis — but it's not an insurmountable problem. 

By taking steps to increase the supply of affordable housing and tame home prices, we can make life easier for those who are struggling to keep a roof over their head.

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