Housing affordability

Housing affordability relates to a person’s ability to pay for their housing. It is a complex issue caused by local housing and labour markets as well as larger economic, environmental and social forces. When people struggle to meet the cost of housing, researchers describe it as housing affordability stress.

Measures of housing affordability stress are a topic of debate. However, in Australia a percentage of income spent on housing costs is generally used to estimate the number of households affected (Project 30206). In common use is a 30/40 rule, meaning those spending more than 30 per cent of their income on housing, while earning in the bottom 40 per cent of the income range.

  • How widespread is Australia’s housing affordability problem?

    • In 2002–03, 862 000 lower-income households were experiencing housing stress, comprising 15.8 per cent of all Australian households and 28.2 per cent of low-income households — See NRV3 Research Paper 3.
    • Housing affordability stress is particularly acute for private renters, single-person households under the age of 65 and low-income home purchasers — See NRV3.
    • Households with dependent children are at greatest risk of spending prolonged periods of time in housing stress. A significant minority churns in and out of housing stress with 22 per cent of households estimated to be experiencing two or three episodes of housing stress between 2001 and 2006 — Project 30521.
    • The decline in house purchase affordability is a structural problem created by house prices growing faster than incomes over the last half century.  AHURI research finds that between 1960 and 2006 real house prices increased at an average of 2.7 per cent each year compared to 1.9 per cent growth in real incomes — NRV3 Final Report.

  • What are the characteristics of Australia’s housing affordability problem?

    • House and rental price instability has significant consequences for the broader economy by affecting household spending patterns and generally reinforcing economic volatility. Lack of affordability in particular areas affects employment. A generation unable to purchase homes leads to widening and unsustainable inequalities — NRV3 Research Papers 4, 5, 10, 11.
    • Housing affordability problems push people into more marginal forms of housing. AHURI research has examined some of the problems arising in less common housing situations including boarding houses (Project 20180) and long term caravan parks — Project 70109.
    • Mining resource booms can create local housing affordability problems, including under-supply and high rents in remote areas. The research finds that land development strategies must be actively planned and managed to satisfy housing needs during and after a boom — Project 80370.
    • Housing affordability differences between regional areas and major cities can affect people’s choices about where to live (Project 70066 & Project 70175), and the impact of financial disadvantage — Project 30295.

  • How can the supply of affordable housing be increased across Australia?

    • Governments must develop strategies to increase the amount of housing available for the lower end of the market, and not just provide subsidies to consumers. International case studies and economic modelling indicate that supply-side and demand-side actions are needed in order to achieve affordability goals — Project 60323, Project 60504, Project 30399 & Project 30206.
    • Planning, regulatory and financial mechanisms can be used to encourage private sector investment in affordable housing. The not-for-profit sector is an institutional vehicle for increasing and managing affordable housing — Project 60323, Project 60504 & Project 60322.

  • What are the barriers to overcoming Australia’s housing affordability problem?

    • Over the last decade, reduced investment in public housing has contributed to a reduced supply of low-cost rental housing.
      • Research finds that the private rental market has failed to provide adequate housing supply for people earning lower incomes — Project 50502.
    • The supply of affordable housing is impacted by planning, regulatory and financial barriers.
      • In Australia, planning system complexity, uncertain timeframes, inconsistent planning requirements and a lack of adequate resources at the local government level have all been identified as planning barriers to achieving affordable housing (Project 70393). The The research suggests that these barriers are of greater concern to developers than fixed charges or infrastructure contributions — Project 70393. 
      • Barriers to large scale private investment in low-cost rental housing market include: 
        • Financial risks suh as the changing value of dwellings and land, small rental yields, limited capital gains and the illiquidity of housing.
        • Regulation such as landlord-tenancy legislation and taxation settings that favour small rental holdings.
        • Management and operating risks related to maintenance issues, rental arrears and vacancy rates — Projects 30021, Project 30063 & Project 20346.

Forthcoming research

A number of newly funded projects are looking to build on this work and examine housing affordability in light of recent Australian policy initiatives such as NRAS.

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