Anglicare Australia has just released its seventh annual rental affordability snapshot, which shows that rental affordability for the poorest in Australia has slightly improved over the past year but for many remains extremely low. The report’s recommendations will be of particular interest, given the ALP’s policy on negative gearing, with Anglicare arguing that the current tax system of negative gearing and capital gains does not serve the common good.
Whenever talk turns to housing affordability, inevitably it deals with the ability to buy a house rather than rent. And while we can argue over whether or not young people need to give up their latte, or whether things are significantly worse than 20 years ago, the issue of rental affordability is often forgotten.
And yet for many Australians the dream of owning a home is closer to fantasy and the issue of rental affordability is a daily concern.
The Anglicare Australia snapshot involves a survey each April of 75,410 rental property listings across Australia.
The report considers a property to be affordable if the rent takes up less than 30% of the household’s income. The report then considers the affordability for households across a variety of income levels – using the maximum rate of Centrelink pensions, allowances such as the aged pension, Newstart, disability support, the single parenting payment and the minimum wage (or a combination of the minimum wage and payments).
Rental prices in the past year have largely followed the general low inflation growth. While housing prices have risen strongly (even if that strength appears to have weakened somewhat in the past few months), rents across Australia increased in 2015 by just 1.2% – a lower amount than the overall inflation measure of the consumer price index:
This aspect is crucial because the Newstart benefit is indexed each March and September by the rise in the CPI (the aged pension is indexed by the higher of CPI and Pensioner and Beneficiary Living Cost Index and then benchmarked against average male weekly earnings).
While, for most of the past decade, rental prices have been going up by more than either inflation or the minimum wage, in the past year people’s incomes have been the ones rising the most – even if that rise is historically low.
And the low rental price growth is pretty consistent across Australia – in some capital cities such as Perth and Canberra, rental prices have actually been falling:
But the price of rents and wage and inflation growth also need to be taken into context. Yes the past year may have been good, but when looking at affordability it pays to have a longer perspective.
Over the past decade rental prices have increased by 52%, whereas the minimum wage in that time has risen by just 35% and inflation by a mere 29%.
Thus, for someone on the minimum wage, rental payment takes up a significantly larger chunk of income than it did ten years ago.
But in the past year at least the story is somewhat improved – although it depends upon the region and the type of family. While payments may have increased by more, the ability to afford a rental property is also dependent upon supply – a one bedroom flat may be affordable for a single person on Newstart but isn’t suitable at all for a couple with two children with one adult earning the minimum wage – which is why the snapshot take the size of the property into account.
Across Australia rental affordability has improved the most for single persons on minimum wage. But even here the improvement is quite varied. In greater Sydney and the Illawara, there was no improvement in affordability for such person, but in Melbourne there was a 9.6 percentage point improvement, and in Perth it was just 0.5 percentage points:
That the improvement is best for those on the minimum wage is not too surprising given it grew by 2.5% in the past year compared with 1.7% for the inflation rate – and highlights that, above else, income growth is the major determinant of affordability.
But even with these general improvements the situation is still pretty bleak – and especially so for those on government benefits.
The Anglicare snapshot found that “singles living on an age pension could afford just 2.1% of the listed properties” and that singles “living on the disability support pension could afford a mere 0.5%.”
But it is those on Newstart (a maximum of $527.90 a fortnight) and the youth allowance who struggle the most.
This year, of the 75,410 rental properties, surveyed across Australia, just 21 were affordable for a single person on Newstart and just 121 for a single person on Newstart with one child:
The affordability for all family types and income sources also ranges across the nation – with large differences between the city and regional areas.
For example, in the NSW central-west region around 54% of applicable rental properties are affordable for a couple, both on the minimum wage with two children; compared with just 6.4% of such properties in the greater Sydney/Illawarra area:
And even within specific areas the difference in affordability is quite broad. For example in the Gladstone/Rockhampton region half of rental properties are affordable for a family of four with one parent on minimum wage and one on government benefits, but just 4% are affordable for a single person on the disability support pension:
The report highlights the real struggles for many in society, for whom the standard debate around housing affordability has little to do with their reality.
Anglicare Australia argues the finding show that despite any slight improvement, there remains a need for “a national plan to address housing affordability”. Among the issues they call for are a “serious commitment to reforming the current tax system”.
Negative gearing and capital gains tax are the key issues on this score. The report argues that “while negative gearing and capital gains rules may once have had an important role encouraging investment in property, these tax measures are increasingly locking current and future generations out of the property market.”
Rather pointedly the report notes that Anglicare Australia does not believe the current negative gearing and CGT laws “serve a purpose for the common good.”
The report also argues that there needs to be “a system-wide review of other taxes, such as stamp duties and land taxes, to consider their individual and collective impact on housing affordability.”
The report also argues that governments need to ensure “the supply of housing is better matched to people’s needs” and that the “supply of social housing” needs to grow.
But finally, as the figures show, the best way to increase rental affordability is for income to increase faster than rental prices. To this end Anglicare calls for an increase in both the rates and the indexation of Newstart and youth allowances.
Given the minor reductions in unaffordability over the past year due to the historically low level of rental price growth, it is hard not to agree with the report’s conclusion that without changes to the current tax regimes and supply policies “we are unlikely to see a significant change in the affordability of rental properties for people on low incomes.”
