The 2013 housing boom has prompted serious discussion about housing affordability.
It has challenged the ‘Australian Dream’ of home ownership, with many non-home owners choosing to (or being forced to) rent rather than commit to a mortgage.
Two problems exist with renting as opposed to home ownership in Australia:
- Wealth disparity
- Renting is precarious
There is an enormous wealth disparity between home owners and non-home owners.
In the two years to October 2015, the median Sydney house increased in value by 41.04% – or $310,000.
During the same period, average weekly earnings in New South Wales only went up by 3.76%.
In other words – if you’ve owned a median house in Sydney since October 2013 your wealth has increased by over 41.04%.
If you didn’t own a median Sydney house – your wealth only went up by an average of 3.76%.
Renting is Precarious
The second issue with renting in Australia is that it is precarious.
Leases in Australia typically last 6 to 12 months, leaving living situations in a state of flux.
Good tenant and landlord relationships do exist and can, in some cases, last years.
However, with interest rates and house values rising – and with mortgages to repay, both home owners and tenants are sacrificing more of their income to have a roof over their heads.
Rent on the median Sydney house went up by 12.67% ($75 per week) in the two years to October.
This is a significant increase compared to the rest of Australia – where the increase was only 4.88% (approximately $20 per week).
National Shelter, in partnership with Community Sector Banking and SGS Economics and Planning, recently released a report with a Rental Affordability Index.
National Shelter argued that the unaffordability of rent is likely to force low income households to move out of certain urban areas.
One of the indicators used in the research was the percentage of household income it takes to make rental repayments.
It is widely established that spending anything above 30% of gross household income on rent is unaffordable.
Using gross median household income and Onthehouse.com.au median rent data for individual metropolitan postcodes across Australia, I have determined the percentage of income required to meet rent payments in different postcodes.
Of all metropolitan postcode areas measured, 64.25% (541) showed households were paying an unaffordable level of rent – that is, 30% or more of household income.
Unsurprisingly, the research revealed that the majority of unaffordable postcodes are found in Sydney (38.08%) and Melbourne (23.10%).
Figure 1: Rental Affordability – Sydney
Many postcodes around the Sydney CBD require 40% to 70% of median household income to meet rent repayments.
In fact, of the 230 postcode regions analysed across the entire Sydney region, 206 areas required rental repayments of more than 30% of the postcode’s median household income.
Rozelle was the only inner city postcode area in Sydney showing rental affordability of under 30%, but this is a function of high incomes in the area.
Despite relatively low dwelling values, the south-west regions of Sydney are also unaffordable due to low incomes.
Another thing to note is that these percentages are of median rent to median household income.
It is safe to assume that low income households would struggle to keep up with Sydney rents.
Sydney also dominated the list of the most unaffordable postcode areas to rent in across the country. This list is presented in Table 1.
Table 1: Most Unaffordable Rent Postcodes – Sydney
Melbourne also presents large levels of rent unaffordability.
Figure 2: Rental Affordability – Melbourne
The data shows that the most affordable area close to the CBD is the south-western region of Yarraville (10 km from the CBD) where gross median weekly household income is estimated to be $1,770, with the median rent being around $510 per week.
This means households are spending approximately 28.8% of gross income on rent.
Outrageously, rental affordability was the best in Canberra due to a combination of high incomes and low house values.
Figure 3 shows the percentage of household income spent on rent in Canberra postcodes.
Figure 3: Rental Affordability – Canberra
With those in Capital Hill typically paying a low 24.3% of income on rent each week, it is no wonder the Federal Government is inactive on housing affordability.
The latest State Market Reports from Residex are now available.
Click here to get your copy.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.