Key Issues:
- Australia has an under supply of housing, particularly for rental housing that is affordable for low and middle income earners.
- The undersupply of affordable rental housing has been looming for over a decade and directly impacts on affordability for renters and home buyers.
- We need to see affordable rental housing growing at the same rate as population growth to avoid worsening of housing stress.
- Government policy is focused on increasing housing supply and ensuring that a proportion of the increased stock is available to rent to low and moderate income earners.
1.1 Defining the problem
Australia urgently needs to expand the stock of affordable rental housing. The housing supply gap is having a direct impact on housing affordability for both renters and home purchasers. Most of this impact is on low and moderate income earners who were not home purchasers before the housing boom commenced in the late 1990s.
The affordability of the private rental housing market has declined in the last 12 years, particularly for those households on low or fixed incomes.1 Between September 2006 and September 2009, real rents increased by 12 per cent.2Key workers and households on moderate incomes are having difficulty saving with rising rents and increasing house prices.
This is not a new problem – the shortage of affordable housing and the pressure on renters has been building for over a decade. In 2009, the National Housing Supply Council reported that the supply of affordable rental dwellings for lower income households fell in both absolute and relative terms in the ten years to 2006, despite a 20 per cent growth in the total number of private rental properties (Figure 1). In 2006, the estimated shortfall in the supply of affordable rental housing was around 251,000 dwellings.
Figure 1: Shortage and/or surplus of affordable private rental dwellings, 1996-2006
Notes:
- Of the dwellings affordable for lower income private renters in the lowest two quintiles of the income distribution, 481,000 of these were occupied by households in the top three quintiles of the income distribution. This reduced an 'apparent surplus' of 230,000 affordable dwellings to a shortage of 251,000 affordable and available dwellings.3
- Rents are in real terms as at 2006.
Source: Australian Government (2009) National Housing Supply Council - State of Supply Report, Canberra p97.
Figure 1 shows that in 2006 there was a shortage of 146,000 in the private rental sector with rents below $115 per week (affordable for those with gross household incomes below $20,000 per year). This represents a worsening of the absolute shortage of private rental dwellings that are affordable for low income households in 2006 compared with 2001 or 1996.
Public housing has traditionally been a safety valve for the private rental market and a stepping stone to home ownership for low and moderate income earners. However, at 4.5 per cent of Australia's total housing stock,4 public housing cannot provide a realistic alternative to the private rental market for all low income earners. Public housing stock has necessarily become increasingly rationed to the most disadvantaged and, while private rents remain high, demand for public housing will continue to grow.
Demand for public rental dwellings is projected to increase over the next twelve years, and will be felt most keenly in Melbourne (37 per cent), Perth (53 per cent) and all of South Australia – Adelaide (24 per cent) and rest of the state (29 per cent).5Figure 2 shows that while recent initiatives will increase the supply of social and affordable housing up to 2012, without continuing strong investment, stock will reduce over time to 2023, and the supply-demand gap will continue to increase.
Figure 2: Social housing demand and supply projections6
Source: A Progress Report to the Council of Australian Governments from Commonwealth, State and Territory Housing Ministers – Implementing the National Housing Reforms, November 2009 published by the Victorian Government Department of Human Services on behalf of the Housing Ministers Conference available at the Council of Australian Governments website p.16
Figure 2 shows social housing demand and supply projections for Australia from 1996 to 2028.
It is projected that the supply of social housing dwellings required to keep pace with:
- low household growth will need to increase to just over 650,000 by 2028; and
- medium household growth will need to increase to approximately 662,000 by 2028.
While recent initiatives will increase the supply of social housing dwellings to a projected 450,000 by 2013, stock will reduce over time, to around 415,000 by 2023 in the absence of continuing strong investment. This figure is projected to remain steady until 2028.
1.2 Growing Affordable Rental Housing
Over the 15 years to 2023, demand for rental accommodation is forecast to increase by 21 per cent. Overall, the highest demand will be at the lower end of the housing market.Based on the current mix of public and private dwellings, 93,000 additional public rental dwellings and 387,000 private rental dwellings will be needed by 2023.7 Queensland and Western Australia are under particular pressure, while the combined rental demand of the two largest states, New South Wales and Victoria, will amount to over 270,000 dwellings.
Figure 3: McDonald–Temple projections: Underlying national demand for rental tenure, 2008, 2013, 2018 and 20238
Figure 3 shows the underlying demand for rental tenure in Australia from 2008 to 2023.
It is projected there will be a
- 28% increase in demand for public rental dwellings from 337,888 in 2008 to 431,277 in 2023.
- 20% increase in demand for other rental dwellings from 1,932,839 in 2008 to 2,319,858 in 2023.
- 21% increase in demand for total rental dwellings from 2,270,727 in 2008 to 2,751,130 in 2023.
1.3 The Government's response
Government policy is focused on increasing housing supply and ensuring that a proportion of this is available for rent to low and moderate income earners. The Australian Government has recently made a significant investment in affordable housing through the Nation Building Economic Stimulus Plan, the National Affordable Housing Agreement and the National Rental Affordability Scheme (NRAS). Over the next four years these measures will support the building of more than 80,000 affordable rental homes.
All Australian governments, through the Council of Australian Governments, have committed to a number of significant reforms through the National Affordable Housing Agreement and the Nation Building Economic Stimulus Plan. Under these agreements, governments are committed to pursuing reforms to expand the social and affordable housing sector including increasing the capacity of the not-for-profit housing sector.
The current policy environment has created new opportunities for not-for-profit housing organisations to increase their stock and asset base. A significant proportion of stock built under the stimulus program is expected to be owned by not-for-profit housing associations. Some States have been transferring existing stock to community housing providers so that they may leverage against the asset. Many not-for-profit housing providers have successfully attracted NRAS incentives to build or manage new homes.
It is likely that in the future Government funding will be supplemented by new private investment to deliver more affordable housing and keep pace with population growth. This will mean substantial reform to the social housing sector so that this asset base can be opened up to not-for-profit organisations with the capacity to leverage equity to increase supply.