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Australia’s most unaffordable city for renters named

Renters in Hobart are facing some serious challenges. Images: Getty
Renters in Hobart are facing some serious challenges. Images: Getty

The majority of very low-income households across Australia are feeling the sting of rental stress, but no one has it as bad as those in Hobart.

Even households on average incomes in the Tasmanian capital city are facing rental stress, the latest Rental Affordability Index (RAI) reveals.

What’s the RAI?

The RAI is a joint indicator which measures rents relative to household incomes based on new rental agreements. It’s released by National Shelter, Community Sector Banking, the Brotherhood of St Laurence and consulting group, SGS Economics & Planning.

An RAI score of 100 or below means households are spending at least 30 per cent of their income on rent. If it’s between 100 and 120, households are facing moderately unaffordable rents.

What does it say?

“Tasmania’s capital city is in a housing gridlock,” Ellen Witte, partner at economic consulting group, SGS Economics and Planning said.

“Rental affordability in Hobart dived even lower during winter. Working families are now facing rental stress with the average income household now paying 30 percent of income on rent.

“This means these households are unable to save sufficiently for a deposit on a mortgage.”

Greater Hobart hit an RAI of 101 in June this year, indicating that median rents in the city are now unaffordable – even to median income renters.

Renters on moderate incomes are now likely paying 30 per cent of their income to rent, and a single part-time working mother would be paying a staggering 42 per cent of her income on rent in addition to child care and education.

“The city needs a comprehensive housing strategy with commitment and initiatives from both state and local government to address the issue,” Witte said.

This isn’t just a Hobart problem

While other Australian cities, like Sydney, have seen slight improvements in rental affordability, these benefits haven’t trickled down to low-income households, the CEO of Community Sector Banking, Andrew Cairns added.

“Looking beneath the headline figures, rental stress is affecting the majority of very low-income households in Australia. Pensioners and single parents are hit particularly hard.”

Greater Sydney has an RAI of 113, meaning it’s also moderately unaffordable. Milsons Point, Kirribilli, St Ives Chase, Pyrmont, St Ives, Point Piper, Rozelle, Edgecliff and Darling Point are the least affordable suburbs.

“The situation facing the nation’s renters remains poor with little or no improvement for low and moderate income renters.”

Unsurprisingly, low-income households in Sydney are also the worst off, and could lead to a shortfall of more than 35,000 social and affordable dwellings in Western Sydney alone. By 2036 this is set to shoot to 64,000 households.

It’s a similar story in Melbourne, where suburbs further from the CBD have become progressively less affordable over the course of the year.

The least affordable Melbourne suburbs are Albert Park, Middle Park, Cromer, Beaumaris, Port Melbourne and Brighton East, where renters on an average income can expect to pay between 30 and 38 per cent of their income on rent.

‘We need a National Housing Strategy’

The solution could be a National Housing Strategy, according to the executive officer of National Shelter, Adrian Pisarski.

And it’s urgently needed.

“The situation facing the nation’s renters remains poor with little or no improvement for low and moderate income renters in our capitals and poor affordability in our regions,” Pisarski said.

“Compared to improvement in purchase affordability, renters are doing it tough. While we have many housing markets in Australia, none of them are positive for renters. We need a multi-party commitment to improve rental affordability over the long term,” he continued, calling for all political parties to commit to improving rental affordability.

Rental unaffordability entrenches inequality and poverty

As suburbs on the outer rings of cities become more unaffordable, low-income workers are pushed further from the city, public transport and job opportunities.

“Housing cost pressures mean some renters on Centrelink are being pushed into homelessness. We need to raise Newstart and its very modest rental supplement as a priority,” the executive director of the Brotherhood of St Laurence, Conny Lenneberg said.

Nearly half (45 per cent) of low-income households around the country are experiencing rental stress, and single-parent families are at a significant disadvantage.

Of the 110,000 single-parent, low-income households in rental stress, 82 per cent of these households are single mothers.

“No matter how efficient a housing market operates, there is always a need for social and affordable housing.”

Most earn less than $41,600 a year and if they’re living in Sydney, they’re likely paying 70 per cent of their income on rent.

However, the majority of low income, single-person households experiencing rental stress are single men (57 per cent). Half of these households are taking home less than $36,400 a year and paying an average 68 per cent of this on rent if they live in Greater Sydney.

“No matter how efficient a housing market operates, there is always a need for social and affordable housing, like there is a need for investment in roads, public transport, education and health,” SGS Economic’s Witte said.

“Over the last few decades we have seen a consistently deteriorating level of government investment in social and affordable housing. While new national policy has a focus on providing affordable finance there remains a gap between the cost of providing housing and the returns of social rents.”

How does our social housing compare internationally?

Australia’s percentage of social housing (4.4 per cent in 2016) sits at the the EU median average.

In Germany, 4.2 per cent of households are social housing and in Italy 5.3 per cent of households are social housing, the Australian Housing and Urban Research Institute (AHURI) noted last year.

However, 33 per cent of households in the Netherlands are social housing, while 20.1 per cent of those in Austria fall into that category, as do 20 per cent in Denmark and 19 per cent in Sweden.

Source: AHURI, Housing Europe
Source: AHURI, Housing Europe

The picture changes when comparing across countries with a similar GDP per capita.

“Australia’s level of social housing … was also low in comparison to the UK and countries within the European Union that had similar GDP per capita rankings, although the percentage of social housing was comparable to culturally similar Canada and New Zealand, and was very much higher than the level in the US,” AHURI said.

Tax reform also needed: Is this the end of negative gearing?

Witte said houses should be treated as a place of residence before an investment opportunity.

But, she lamented, the current tax system does the opposite and is driving Australians out of home ownership.

“While more households than ever rent, the rental market still relies on the inefficient and ineffective delivery of rental housing through mum and dad investors. We need large-scale institutional investment in the rental sector providing secure and quality housing for the long term.”

The Labor party is heading to a 2019 election with a promise to rein-in negative gearing tax breaks. They argue negative gearing disadvantages renters and sees high-income earners reap the benefits of a tax break.

They want to change negative gearing law so that it only applies to investments in new dwellings. Current negative gearers won’t be affected, and Labor believes this move will also lead to greater housing supply.

However, the Coalition argues reforming negative gearing will see all home owners see their property values fall and actually increase housing unaffordability fall as investors increase rents to cover the lost tax break.

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