One of the leading causes of the rental crisis is very low levels of housing stock, but experts say building more isn’t the simple solution to ease pressure.
Across the country, total rent listings are down by 13.5% over the year to August, with no signs of relief in sight.
PropTrack economist Anne Flahertly said there are several contributing factors to the shortage of rentals.
“In recent years, we have seen more investors selling properties than buying,” Ms Flaherty said.
“This is due to the rising costs associated with property investing, including increased land tax rates and changes by the Australian Prudential Regulation Authority designed to limit growth in investor lending and increased rates on interest only loans.”
Rapid growth in the short-term rental market, such as Airbnb, is also having an impact, she said.
“For many investors, leasing on the short-term market is more profitable and this has further reduced the number of properties available as long-term rentals.”
Capital cities are once again buzzing with the return of international students and renters who fled to the regions during Covid lockdowns, adding more pressure to the tight market. Across the capital cities, total rent listings are down 17.7% year-on-year.
Capital cities are once again bustling post-Covid and it’s putting pressure on rental markets. Picture: Getty
“The fact that the supply of rental properties reduced over the pandemic, when Australia’s international border was closed, is concerning,” Ms Flaherty said.
“Now that overseas migrants and students are returning this will further increase competition for rental properties.”
The solution to keep up with the mounting demand seems simple – build more dwellings. But experts say it’s easier said than done.
Building takes time and time is of the essence
Andy Fergus is an urban strategist and advocate and said there’s a lot more that goes into building for the rental market than people believe.
“I think there’s an assumption that houses might be a bit like bananas – if you produce more of them, the price will go down and people will have more affordable options,” Mr Fergus said.
“But the challenge with housing markets is how difficult it is to assemble land, construct a building, secure finance, and deliver it.”
Building takes a lot of time and many Australian renters need a home right now. Picture: Getty
Time is also a difficult hurdle to overcome, as negotiating the purchase of land, loans and construction all take significant time, and the Australians currently battling the rental crunch need a home now.
“There are time delays to consider,” Mr Fergus said. “For example, if a new project is going to start tomorrow, it could reasonably be five years before that supply might be available to market.”
Strategic building is key
To properly ease pressure on the rental market, building needs to be targeted towards certain demographics of tenants.
For example, if a developer is only building apartments that will cost $600 per week, but the largest cohort of renters needing a home has a budget of $400 per week, the problem is left unsolved, Mr Fergus pointed out.
“I think something that’s so important is to think about is the targeted areas of the rental crisis and the price points that we want to be able to achieve.
“We need to think about the levers we have available to specifically target those experiencing rental stress or lack of access to housing, rather than just thinking that building more housing at the maximum carrying price of the market will automatically create affordability outcomes.”
Experts say there is a huge lack of supply for moderate income earners renting. Picture: Getty
Some experts believe build-to-rent could help with the issue, but the concept has been slow to take off in Australia.
“Several factors are making it difficult for build-to-rent to be adopted within Australia, including the way the sector is taxed [it’s taxed differently and is more costly for developers], lengthy approval times, and complex regulations,” Ms Flaherty said.
Developers need incentives to build affordable housing
One of the key areas that is in need of more development is affordable and social housing, but there are few incentives for developers to include those types of dwellings in their projects.
“Developers don’t exist to provide a public good – they exist for the purpose of creating profit,” Mr Fergus said.
“The inadvertent effect of that is they produce housing, but it’s very difficult for them to just take a hit on prices without some other incentive to do so.”
Australia is battling through the tightest rental market ever. Picture: Getty
He suggested that by providing them with lower interest rates or a longer-term loan they will likely be more enticed to include affordable housing in their development.
The other option is to regulate the requirement to build a certain proportion of affordable housing into a developer’s design in order to receive discounted land value.
“This is something that happens a lot in the US, Canada, the UK, as well as in continental Europe,” Mr Fergus said. “It’s less common in Melbourne, but it’s certainly something that local councils are advocating for.”
Government intervention needed
The Albanese Government was elected during the rental crunch with a commitment to build more social and affordable housing to keep up with skyrocketing demand.
The $10 billion Housing Australia Future Fund will see 30,000 new social and affordable dwellings built in its first five years – 20,000 of these will be social housing and 10,000 will be affordable homes.
While the initiative caters to the neediest renters in the market, moderate income renters largely miss out.
“There’s this huge gap in the middle where we need new innovative solutions to find new models of rental housing for moderate income earners,” Mr Fergus said.
“Government could support pilot projects in new forms of non-profits, or even cooperative rental housing is a really interesting model that I know federal and state governments are looking into at the moment. That could really take off.”
