Australia’s rental crisis: Nowhere to live, rent going up – five things needed to end the chaos

Jan 2023Karen Millers

Soaring rents and a lack of properties to lease have become a crisis across Australia in the last 12 months. 

Nationally, rents rose 6.7 per cent to a median of $495 per week in 2022, but the issue was much worse in capital cities.

In cities such as Melbourne and Sydney, higher post-Covid demand for fewer properties saw unit rents up by 9.3 per cent, while houses went up 8.3 per cent.

Renting has become a key issue in the upcoming NSW state election, with the Opposition Labor party saying it will create a Rental Commissioner to advocate for renters and boost rental supply in the regions if it wins power. 

Daily Mail Australia spoke with experts representing renters, owners and research bodies to find out what can be done to help fix the pressing problem – including rezoning ‘crappy wooden structures’. 

Homes people want must be built in places where they want to live

Building the right homes in the right places sounds like a simple solution, but it’s not.  

‘A key factor is the Australian dream,’ said Dr Thomas Sigler of the University of Queensland.

‘Most Australians aspire to having a detached home, a garage, a backyard, a barbeque, all the trappings of the Australian dream.

‘But there’s nowhere to put the Australian dream except for on the outskirts of the major cities,’ he said.  

‘You’re talking about Campbelltown (57km south-west of Sydney), you’re talking about Logan (24km south of Brisbane), the extremities of major cities.

‘You’re talking about Campbelltown (57km south-west of Sydney), you’re talking about Logan (24km south of Brisbane), the extremities of major cities.

‘It’s impossible, financially, for the average Australian family to afford all the things that comprise the Australian dream.

‘So the only way to do it is to put in on the urban periphery where the land is cheap and the state governments are relatively willing to work with developers to open up new land,’ said Dr Sigler. 

Nicola McDougall, chair of the Property Investment Professionals of Australia, agreed that most of the available land is located in the far suburbs and beyond. 

‘So there is little option but to build new properties in those areas, which is not necessarily where people want to live,’ she said. 

Ms McDougall said a potential solution would be to ‘relax zoning laws closer to the city to allow more development in specific locations’. 

‘For example, there could be zoning that allows a set number of duplex or small residential development in a finite area. 

‘This would enable renters to live closer to the city and closer to the things that many young people want to enjoy such as cafes, restaurants and nightlife.’ 

Leo Ross Patterson of Tenants’ Union of NSW said new developments need to ‘offer people a good deal. 

‘You want to make it a place where people want to move to, rather than forcing people to the edges of the city because they can’t afford anywhere else.

‘So, release land, but make it an attractive and good place to be,’ he said. 

Interest rates need to stop increasing 

There are mixed views on how much effect interest rate rises have on rents, but everyone would like the rate rises to stop. 

‘Rising rental prices have been under way for a number of years because of the critical undersupply of properties available for lease versus the demand from tenants,’ said Ms McDougall.

‘When you add in eight interest rate hikes in eight successive months last year, then further upward pressure is being applied to rents because of the greatly increased holding costs of investors.’

She said rising rates led to both a fall in the number of people buying properties to rent and existing investors selling. ‘This has pushed residential rental vacancy rates to record lows around the nation. 

‘The current rising interest rate environment has further reduced the volume of investors who would usually purchase because they have been unable to secure finance,’ said Ms McDougall.

Mr Ross Patterson, however, takes a different view on the matter. 

‘It’s important to say that landlords’ costs don’t set rents. We know this because we have negative gearing. 

‘The key culprit is household formation’

Dr Thomas Sigler, the deputy head of the School of Earth and Environmental Sciences at the University of Queensland, explains the huge role the number of people in a dwelling plays in rental property availability. 

‘The key culprit is household formation. Typically we’re inclined to correlate population growth with demand – so we need more dwellings for more people.

‘Typically, 2.5 people was the median household size. But what happened during Covid was that household size reduced to 2.4 people. 

‘That doesn’t sound like a lot, but it’s a 4 per cent reduction. That means there are 4 per cent more renters looking for properties.

‘The reason that happened is because people wanted more space during the pandemic. For example, people, rather than having three flatmates, had two flatmates plus a Zoom room.

‘People wanted more space for their home offices, they didn’t want as many roommates for health reasons, people wanted to move out from mum and dad’s house, and that led to an uptake in household formation that outstripped supply.

‘It wasn’t population growth that outstripped supply, it was household formation that outstripped supply.’

‘Half of investors collect less rent than their costs are, so clearly their costs are not setting the rent.’

He does agree about the resulting undersupply of properties, though. 

‘It is not the interest rate that raises the rent, it is the undersupply of housing and landlords taking advantage of that undersupply. 

‘The other test you can do is to ask if people no longer paying a mortgage on a property charge less rent, and the answer is no. The opposite is true.’

Dr Sigler said a knock-on effect of interest rate rises is that it prevents some ‘renters from jumping into the ownership market, so that does add additional renters to the market’.

The supply of land for housing needs to increase through rezoning

The notion of knocking down some old housing stock to make room for more people in the same spot is a vexed and controversial one, but Dr Sigler said it has to be considered.

‘Better suited areas tend not to be zoned for high density residential. One reason is historical preservation,’ he said. 

‘We’re often very reluctant to destroy our past built environment – obviously you don’t want to be knocking down these beautiful town houses in places like Surry Hills, Paddington and Balmain in Sydney. No one wants to see those go.

‘But you have to make hard choices sometimes and there is a fairly large pool of academics and economists who would argue that we need to make some hard decisions.’

Dr Sigler risked upsetting some Not In My Back Yard-type people in saying ‘In Brisbane we’ve got these houses called Queenslanders, which in my opinion are quite ugly. 

‘They’re these crappy wooden structures which were built around the turn of the last century and you can’t tear them down. They are often located on prime urban land. 

‘So you’ve got, for example, a Queenslander that’s accommodating a family of four on an 800metre block, and [that block] could be housing five families of four,’ he said. 

Dr Sigler said sites currently zoned industrial could also be used for housing – up to a point. 

‘A lot of inner city sites are really big but they’re zoned industrial and there is often existing industry next to them. 

‘Sometimes they are contaminated with metals and have to be cleaned up at a really big cost and only the government is in a position to enforce that clean up or do that clean up,’ he said. 

Impact of Airbnb and other short-term rentals needs to be addressed

There are mixed views on how and where short-term rental properties such as those advertised on Airbnb affect the cost and availability of long-term rentals. 

‘In small regional towns, where there is not a lot of supply to start with, it can have quite a big impact,’ said Mr Ross Patterson.

‘In the middle of Sydney, or places like Bondi, it still has an impact, but it may be lessened because the rents in those areas are already so high that the kind of people who are most impacted by Airbnb coming in have already been forced out.’ 

Dr Sigler also used the popular Bondi district in Sydney’s eastern suburbs as an example. 

‘There are some heavily local impacts in places that are highly sought after and coveted, for example in Bondi Beach in Sydney there is an incredible demand to live there and a lot of Airbnbs there,’ said. 

‘Short-term rentals are absolutely competing against long-term rentals in places like Bondi, but people in Sydney have options beyond Bondi.’ 

Migrants should be more evenly spread out across Australia 

The 300,000 migrants predicted to arrive in Australia in 2023 will have an effect on housing supply and prices, but the impact is not spread evenly. 

‘About 70 to 80 per cent of Australia’s migrant intake head straight to live in Melbourne and Sydney,’ said Dr Sigler. 

‘So that is where it places additional demand on rental property availability. 

‘There are net inflows to Melbourne and Sydney of international migrants and net outflow from Melbourne and Sydney of domestic migrants, who typically move to Queensland or WA because the job opportunities are good and the housing is much cheaper,’ he said. 

‘The pressure on WA and Queensland is mainly from domestic migrants, the pressure on Victoria and NSW is mainly from international migrants.’

Ms McDougall also noted the impact of migration. 

‘Unfortunately, the pressure on rental prices is going to keep building for the foreseeable future given the net migration into Australia this year. 

‘When that new migration figure was announced last year, my first thought was “Where are these people going to live because we don’t even have rental properties for our own population?”

‘Unfortunately, politicians don’t seem to be worried about that or the fact that a growing percentage of their residents don’t have anywhere to live at all,’ she said. 

Dr Sigler, though, said there is light at the end of the tunnel.

‘This is not the first time Australia has had a housing crisis and it won’t be the last. It will blow over,’ he said. 

Originally Published: Padraig Collins | Daily Mail Australia | 21 Janauary 2023

We strive to bring accountability, ethics, and education to the property investment industry.

PIPA exists to improve the professional standards of anyone providing property investment advice to consumers. Our voluntary Code of Conduct means that members adhere to a high set of professional standards to help protect consumers. Qualified Property Investment Advisers (QPIAs®) have the highest form of industry-recognised, specialist training and can be trusted to provide tailored and unbiased advice to consumers.

PIPA also regularly produces research, analysis, and publications to help educate our members, media, and consumers about the property investment sector.

By signing up for our newsletter, you will gain access to two of our most valued resources – the Annual Investor Sentiment Survey report and the quarterly PIPA Adviser e-magazine.

2023 Investor Sentiment Survey

The Annual PIPA Investor Sentiment Survey is a rare snapshot of the buying intentions of property investors.

PIPA Adviser Magazine

The PIPA Adviser provides the latest research on market conditions, including forecasts for next year.