While only one-in-five Australian households rents privately at a given moment, private rental is an important and growing part of our housing system. It provides flexibility and choice for many renters, and a familiar investment option for others, but has failed to serve the housing needs of low-income people.
According to the 2006 ABS Census, 22 per cent of households rent privately, an increase of four percentage points since 1995 (ABS 2007). In 2006 private renter dwellings numbered 1.47 million Australia-wide, an increase of 11 per cent since 2001 — Project 50502.
AHURI has a significant body of work that explains how the private rental market functions in Australia. It also provides evidence about the profile and experiences of private rental tenants, identifies private rental investor motivations and risk-assessment practices, and analyses government policies that seek to address affordability problems in the private rental market.
What is the size of the private rental market?
- Whilst Australia’s private rental market has expanded since 2001, much of this growth has taken place at the moderate to high-end of the housing market. Housing stock in the four lowest rent categories declined from 50 to 37 per cent (Project 50502). Low-income private renters experience the greatest incidence of housing affordability stress in Australia — See NRV3.
- Fifty-six per cent of existing low-cost dwellings are occupied by higher income households, resulting in a shortfall of 211 000 low-cost dwellings. Consequently, many low-income households have been forced to shift from the inner city to the middle and outer suburbs. Geographically, Sydney reveals the greatest shortages, followed by Melbourne and Brisbane — Project 50502 & Project 60190.
- AHURI research indicates that the private rental market is no longer a transitional tenure simply used as a steppingstone to home ownership (See NRV2). The high cost of housing is now the most significant barrier to home ownership with many private renters no longer aspiring to home ownership.
- It is anticipated that the number of low-income private renters over the age of 65 will increase by 115 per cent by 2026. The greatest increase will occur for those over the age of 85 years (NRV3). These changes can be explained in part by an ageing population along with changing household structures (through bereavement, divorce or separation) — Project 30315.
What are the experiences of private rental tenants?
- The experiences of people in the private rental market differ considerably according to income, household type and personal characteristics. For example, Indigenous women report that racism and discrimination are significant barriers to accessing the private rental market, whilst other groups reportedly trade-off affordability and tenure security for a greater amount of choice and flexibility — Project 50142.
Who invests in private rental and why?
- Small scale, ‘mum and dad’ investors dominate the private rental market. Research indicates that non-financial motivators like personal goals or personal and family circumstances play a key role when deciding to enter the rental market. However, these factors do not exert a major influence on the decision to exit the market. Instead, financial variables such as increased after-tax economic costs (rates, maintenance and repairs) are likely to influence an investor’s decision to sell — Project 20280 & Project 30521.
- Landlords and property managers have negative perceptions of some low-cost housing tenants, which may reduce investment in low-cost housing. Perceived high-risk characteristics include having a low-income, being a sole parent, having a disability or being an older tenant — Project 20280, Project 30521 & Project 20346.
- Barriers to large scale private investment in low-cost rental housing market include:
- Financial risks such 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 — Project 30021, Project 30063 & Project 20346.
How can affordability problems in the private rental market be addressed?
- Commonwealth Rent Assistance (CRA) has been identified in AHURI research as an important policy component to address affordability issues. For example, it has a positive impact on education participation for young people — Project 50007 & Project 30399.
- The research finds however that government intervention to increase the supply of affordable housing needs to be introduced alongside CRA if affordability is to be improved — Project 60323, Project 60504, Project 30399 & Project 30206.
- Brokerage services have also been found to assist low-income private renters to access a home but are insufficient to sustain tenancies for those facing affordability and personal problems (Project 40194). However, tenant support services that link clients to external support programs to meet their non-housing needs have been successful at sustaining Indigenous tenancies — Project 80372.