Housing affordability for lower-income Australians

AHURI eRAP

The National Research Venture -  Housing affordability for lower-income Australians was launched in 2004 to answer the question "How do we assess and address housing affordability for lower income households in Australia?"

This eRAP has been developed to highlight the key findings from the three year National Research Venture. Clicking on one of the topics below you will reveal several key findings. By clicking on the '[More...]' links below you will be taken directly to the relevant paragraph of the report that supports the finding.

  • How is the affordability problem conceptualised?

    • Housing affordability is a tenure-neutral term that denotes the relationship between household income and household expenditure on housing costs. [More in Research Paper 1...]
    • The average amount spent on housing costs across all households in Australia was 15 per cent in 2003-04. Currently around 15.8 per cent of all households pay twice as much as this – that is, they pay at least 30 per cent of their income in meeting their housing costs. For lower-income households this proportion (at 28 per cent) is almost double the Australia-wide average. [More in Research Paper 3...]
    • Housing stress (as defined by the 30/40 rule) is a conservative and robust broad brush indicator of the number of households potentially at risk of housing affordability problems. In 2002-03, a total of 860,000 lower-income households in Australia were in housing stress and at risk of housing affordability problems. [More in Research Paper 3...]
    • Those in housing stress can be also characterised as falling into one of four groups: first home buyers on modest incomes (‘the stretched’); households dropping out of homeownership (‘the backsliders’); renters who would like to purchase but can’t (‘aspirant purchasers’); and low income renters unlikely to homeowners (‘strugglers’). [More in Research Paper 9...]

  • What are the drivers of affordability problems?

    • Housing affordability is a structural problem and as such has been a problem that has existed for some time. [More in Research Paper 3...]
    • Causes of affordability problems are complex and diverse. Major driving factors can be found both within the housing system and beyond it. [More in Final Report...]

  • Why does affordability matter?

    • High house prices may contribute to inflationary pressures through home owners' increased consumption generated by wealth effects, and constrict budgets of renters because of higher housing costs. [More in Research Paper 4...]
    • Some of the coping strategies employed (such as frequent moves by private renters) are not a result of choice and as such can contribute to a lack of social cohesion. [More in Research Paper 9...]
    • Intergenerational or distributional equity is compromised by the increasing disparities between those who gain access to home ownership and those who do not. [More in Research Paper 11...]
    • Processes of gentrification that have pushed much affordable housing to the fringe in urban areas have contributed to spatial polarisation and ‘mismatch’. Resultant difficulties in recruiting labour have the capacity to constrain economic growth. [More in Research Paper 5...]
    • Housing affordability problems have the capacity to make it more difficult to manage the economy as a result of the increased sensitivity of at-risk households to policy changes. [More in Research Paper 4...]
    • Housing affordability problems arise when households are forced into decisions that adversely affect them and that they would not make had they not been in housing stress. These arise when housing stress results in financial stress. [More in Research Paper 9...]

  • Who has an affordability problem?

    • Housing stress can be measured in terms of people’s subjective experience of managing their housing costs. Perceptions of being in housing stress vary across the population sometimes with unexpected results. Around 10 per cent of higher-income householders (who are not defined to be in housing stress) say they manage financially with considerable difficulty or don’t manage at all. Likewise, a similar percentage – 10 per cent - of low-income households with high housing costs and measured to be in housing stress say they manage financially easily or very easily. [More in Research Paper 9...]
    • Low-income renters are the largest group of households experiencing an affordability problem [More in Final Report...].  For many (69%) of these households, home ownership is not something they see as likely. [More in Research Paper 9...]
    • The greatest numbers in housing stress are private renters, working households and households with children (both couple and single parent households). Incidence of housing stress is greatest amongst lower income private renters, single person households and lower income home purchasers. [More in Final Report...]
    • Housing affordability is mainly in urban areas but also occurs in non-urban areas. Spatial variation in outcomes provides even more compelling concerns regarding affordability, particularly in high-cost regions. [More in Research Paper 3...]
    • Those renters classified in the report as ‘strugglers’ are most at risk. They have trouble meeting rent payments and suffer higher levels of financial stress. [More in Research Paper 9...]

  • How has this changed over time?

    • The average amount spent on housing costs across all households in Australia has increased gradually from around 11 per cent of household income in the mid-1970s to just over 15 per cent in 2003-04. [More in Research Paper 3...]

  • Will housing affordability be a problem in the future?

    • Housing affordability problems are predicted to increase in the first half of the 21st century as a result of anticipated demographic and housing market changes [More in Research Paper 11...].  As a proportion of GDP, it would increase from 12 per cent to 14 per cent. [More in Research Paper 11...]
    • Under a reasonably conservative set of assumptions about future trends, both the incidence and the total numbers in housing stress are likely to increase.  By 2045 there is projected to be 1.7 million households in housing stress compared to 1.2 million at present. [More in Research Paper 11...]

  • What can be done to improve affordability?

    • A number of principles, which flow from the above conclusions can be considered by policy makers. These include that:
      1. additional policies and outlays will be needed to offset housing affordability problems;
      2. these will need to go beyond ‘safety net’ housing assistance to address structural issues driving the affordability problem;
      3. policies will need to be sustained to prevent a worsening of the situation;
      4. policies will need to address the private rental market as a priority but also home ownership;
      5. policies to promote efficiency in the housing market and to support a greater permanent supply of affordable housing should be given greater weight than is currently the case;
      6. responses should be tailored to the needs of the individual and adjust when the needs change. [More in Final Report...]
        7.
    • A four pronged strategy is suggested: [More in Final Report...]
      1. tackling housing supply through the planning and development process;

      2. improving demand side housing assistance programmes to make them more flexible and appropriate to households in need;

      3. a national policy for funding and delivering additional supply of affordable and well located housing for rent and sale;

      4. changes to the social housing system to secure the viability of this source of affordable housing and better integrate with new supplies of affordable housing.
        5.
    • In relation to housing assistance, policies to support home ownership that might be more flexible and appropriate might include opening up shared ownership schemes, providing subsidies additional to the First Home Ownership Grant, or a matched deposit saving scheme. [More in Final Report...]
    • Policies to support long term renting might include packages of options to assist tenants to manage transitional costs of changing houses, rent guarantees, improving availability of long term leases in the private rental market  or stimulate further supply by regulated affordable housing suppliers. [More in Final Report...]
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Video summary

A ten minute video summary of the findings from the AHURI National Research Venture - Housing affordability for lower-income Australians

Publications

Background information...

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