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Historically low rental vacancy rates and record-high rent prices across Australia off the back of government inaction, COVID-19 side effects, and a combination of other market factors have dominated headlines in recent months.
Severe labour and skills shortages, the capital gains discount, negative gearing and a scarcity of social and affordable housing are some of the factors combining to drive both house and unit rental rates up 12 per cent in the last year.
The vacancy rate is currently at 1 per cent nationally — the lowest ever, according to data from Domain. Most in the industry would agree that anything below 2 per cent is accepted as a landlord’s market.
It has never been harder for tenants to find an affordable rental property, and there is now a real crisis in rental affordability, according to community service group Anglicare, which conducts an annual survey of over 45,000 rental listings across Australia.
With thousands of businesses across the country suffering from a skills and labour shortage, the federal government is planning to bring nearly 200,000 people into the country in the next year alone to help alleviate the issue. Over the next five years, some pundits suggest Australia needs to create at least 1 million additional properties to help solve the rental crisis. Therefore, more must be done to deliver affordable rental properties over the coming years to accommodate new migrants.
In addition, with the rise in population over the period between the last two Australian Bureau of Statistics (ABS) census estimates, tenant advocacy group Better Renting estimates the number of rental households increased by 280,000 from the 2016 census to 2.8 million at the latest count.
This shift towards more renters, increased rent prices and a shortage of supply have also been driven by a range of other factors, including:
- The introduction of the capital gains discount and negative gearing
- A lack of social and affordable housing
- Higher-income earners seeking more affordable rental properties to help them save for home ownership, which displaces lower-income households from lower-cost rentals
The introduction of the capital gains discount in 1999 — offering a 50 per cent discount on capital gains tax (CGT) if an asset is held for more than 12 months by individuals or trusts — combined with negative gearing, has dramatically increased the number of investors who compete with home owners for any listed property.
While this increases the number of rental properties available, the competition for properties also acts as a barrier to some households achieving home ownership, thus keeping them in the rental market. A lack of growth in wages, rising interest rates and a widening income gap are reinforcing this effect.
The amount of social and affordable housing has also reduced compared with availability a decade ago. As a result, low-income Australians are pushed into the private rental market, where competition is increased and they may be unable to afford the rental rates.
Banner Asset Management’s Quarterly Property Report explores the current rental market and possible solutions, namely the need for a co-ordinated effort from government and industry over a sustained period in order to solve these rental crisis issues.
The reform of negative gearing and capital tax exemptions is important to consider. With Anglicare estimating negative gearing and capital gains tax concessions cost the federal budget $14.85 billion a year, it is time to analyse the extent to which these housing tax concessions are contributing to the problem.
Reform will be no mean feat, given attempts at the 2016 and 2019 elections to adjust negative gearing and capital gains tax, so it’s likely there would need to be support from both sides of politics. However, reform of the housing tax concessions will provide more affordable rental homes for people on low incomes and more funding for social housing.
Ultimately, we need to call on state and federal governments to dramatically increase the housing supply. Governments must play a critical role in addressing the housing market failure and enable all Australians the opportunity to find suitable accommodation befitting a leading OECD country.
With the inflation genie out of the bottle for now and, in turn, the Reserve Bank of Australia hiking interest rates, more pressure will build on households. This will all serve to add political pressure on governments at all levels, so we must start to see more efforts from the government to solve the housing affordability crisis.
Andrew Turner is the chief executive of Banner Asset Management.
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