Rising proportion of ‘forever renters’ requires tax and policy re-think

Three in five Australian renters say they expect they will never own their own home — a significant shift that requires rethinking of tax and housing systems highlights new AHURI research.

The research, ‘Planning for a two-tenure future’, undertaken for AHURI by researchers from The University of Adelaide, University of South Australia, Swinburne University of Technology and McMaster University, examines the changes in Australia’s tenure market (i.e. homeownership and rental markets) over the recent past and what this means for housing in the near future. In particular, it considers how government policies might need to change to support all Australians in a two tier housing market of owners and renters in retirement.
 

More than half of renters expect they will never own their own home

‘Our survey found three out of five (59 per cent) private renters don’t think they will ever be able to afford to buy a home of their own,’ says lead researcher Professor Emma Baker of the University of Adelaide.

‘This shows a significant shift for Australian renters. Whereas previously anyone who desired home ownership believed they would be able to move into that tenure, now more Australians are conscious that this dream may not be a possibility for them.’

However most people want to be homeowners; one of the research project’s surveys reveals that only one in five (19 per cent) participants who rented privately said that renting met their housing aspirations, while the remaining four out of five (78 per cent) aspired to owning their home. A second research survey revealed that 51.5 per cent of private renters rented because they did not have enough money for a home deposit, and 41.7 per cent said they could not afford to buy anything appropriate.
 

Proportion of renters is rising across most age brackets, with cities having worse outcomes

‘It’s not just younger people being affected,’ says Professor Baker.

Between 2011 and 2021, across Australia, the proportion of people renting in the private rental market increased in all age brackets — from 20-year-olds to people aged 80 and above. Over the next 20 years, rental rates are expected to keep growing, with overall home ownership forecast to fall from 67 to 63 percent.

‘The ‘rise of renting’ in Australia is a multigenerational phenomenon,’ says Professor Baker.
 

Government economic policies need to adapt to increasing proportion of renters

Currently, homeowners receive tax concessions that are not available to renters. Examples include no capital gains tax on the sale of the primary residence (which becomes a form of wealth accumulation) and no tax on the imputed rental income of owner occupied housing. Conversely, renters are required to pay rent after income tax.

‘The policy challenge is to make renting a good, long term, stable housing tenure for renters, particularly for lower-income, older renters with limited superannuation,’ says Professor Baker.
 

Opportunities to create a fairer housing and tax system for private market renters

In preparing for a future Australia where up to 60 per cent of renters expect to be lifetime renters, consideration of economic policies (particularly heading to retirement) will be necessary for different sub-groups of renters.

‘Current government policy is rightly focused on low-income households who have insecure tenure. Our research identified two further groups of renters that could be of policy interest in the future to create a fairer housing and tax system,’ says Professor Baker.

These two groups include:

• low to moderate-income households renting longer term (ie with five years or more tenure); and
• ‘rentvestors’- households that own property they rent to others while they themselves rent (often renting a better property in a better neighbourhood than they can afford to buy)

‘To help these groups build resources to face renting in retirement they could, for example, be compensated through tax benefits on non-property investment opportunities such as financial investment products, and superannuation. This would also reduce the need for householders to ‘rentvest’, which can be seen as a form of over consumption of housing leading to higher house prices,’ says Professor Baker.