Chapter 5 - Affordability
- Key points
- Key elements of affordability
- Affordability for first home buyers
- Affordability issues for renters
- Key supply indicators for affordability
Key points
- Housing affordability for first home buyers and private renters declined over the decade to 2008.
- In 2005–06, there were 280,000 home buyers in so-called ‘housing stress’. Of these, 131,000 had housing costs that exceeded 50 per cent of their household income.
- The total social housing stock has declined steadily, from 400,000 dwellings in 1996 to an estimated 390,000 in 2008. If social housing had maintained its share of total dwelling stock, there would be around 480,000 such dwellings.
- In every State capital, vacancy rates in the private rental market have been lower than 3 per cent since 2005, and real rents have increased dramatically in the past two years.
- By 2006, there was a shortfall of more than 250,000 dwellings affordable and available for lower income private renters.
- ABS data indicate that in 2005–06 more than 400,000 lower income private renters were in housing stress. Of these, 156,000 had rents that exceeded 50 per cent of their household income.
- In the decade to 2006, ABS data indicate that the proportion of lower income private renters in housing stress increased from 43 to 60 per cent.
Key elements of affordability
Overview
The high level of aggregation of the state of demand and supply over time can conceal what is happening at a submarket level and the impacts on lower income households in terms of access, affordability and choice. Indeed, one of the primary reasons for concern over the state of supply is the effect that supply has on housing affordability.
One of the consequences of supply gaps such as those identified in Chapter 4 will be a response from the market that is manifested in pressures on house prices and rent levels with resultant housing stress and housing affordability problems concentrated among low income households.
The general upward trend in real house prices experienced in Australia over the past 30–40 years (Figure 1.1) has been driven primarily by the interaction of population growth, increases in household income, and more readily and cheaply available credit, with a relatively inelastic or unresponsive supply of land on which to build housing that provides ready (and affordable) access to employment opportunities or satisfies lifestyle aspirations.
- Greenfield land at the urban fringe or in regional locations is often remote from employment opportunities, particularly if access has to be by public transport.
- Infill development including brownfield land in more accessible locations is in limited supply and is often more expensive to develop (see Chapter 3).
Cyclical variations around the general upward trend in house prices have been driven by factors such as:
- the impact of the cost and availability of finance on borrowing capacity (see Chapter 3)
- fluctuations in demand due to short-term changes in underlying and/or effective demand, in part stemming from policy changes (see Chapter 2)
- short-term fluctuations in dwelling completions, affecting supply (see Chapter 3).
The impacts of these changes at an aggregate level have significant effects on the affordability of housing both for home buyers and for renters.
Measuring housing affordability
For the majority of home buyers, housing affordability refers to the terms on which housing can be purchased. It is typically measured by the ratio of average household income to the income required to meet repayments on the mortgage needed to buy a median-priced dwelling. In broad terms, housing affordability for home buyers declines whenever house prices grow faster than borrowing capacity. For renters, housing affordability refers to the relationship between rents and incomes.
While many households with above-average incomes can afford to spend more than 30 per cent of their income in meeting their housing costs, households in the lower half of the income distribution are likely to have insufficient resources available for their non-housing needs if they spend more than 30 per cent of their income on housing. In the main, it is such households that are constrained in their housing choices and adversely affected by rising housing costs. The proportion of lower income households (in the bottom 40 per cent of the income distribution) paying in excess of 30 per cent of their income for housing, therefore, is in widespread use as an affordability indicator. Such households are defined as being in ‘housing stress’.
The following sections focus on key affordability issues for first home buyers and renters, with particular emphasis on lower income households as the main groups affected by housing stress. The difficulties faced by households forced to relocate from low-cost to high-cost regions, however, should not be forgotten. More detail on different measures of housing affordability and stress, as well as data on variations in housing stress across different population groups and areas, is presented in Appendix 5: Affordability measures.
Affordability for first home buyers
Over the past decade, rapidly rising house prices have contributed to a significant decline in housing affordability for first home buyers. In 1996, a household with an income equivalent to average weekly earnings and with a 10 per cent deposit almost had sufficient repayment capacity to purchase the median-priced home bought by first home buyers, assuming a maximum debt service ratio of 30 per cent and a 25-year loan at the standard variable bank housing rate. By 2008, however, Housing Industry Association (HIA) data indicated that a household with a total income equivalent to average weekly earnings had less than half of the income needed to purchase the median-priced home bought by first home buyers. Under the same loan terms as in 1996 and with a 10 per cent deposit of $42,400, an annual income of $113,100 was required to service the loan needed to buy the median-priced first home in June 2008.
This decline in affordability is illustrated in Figure 5.1. Broad indicators based on median house prices – such as the HIA’s affordability index illustrated in Figure 5.1 – can provide an overview of general affordability trends. Even when they are limited to first home buyer house price data, however, these indicators are highly aggregated and do not necessarily reflect changes in affordability for potential home buyers and particularly for two groups: households with incomes lower than those equivalent to average earnings, and households in high-cost regions. Declining affordability over the decade has made it more difficult for households that, prior to the decline, postponed the decision to buy (possibly for lifestyle reasons) and has meant that many lower income households currently are unable so.
Figure 5.1: Housing affordability for first home buyers, 1996–2008
Note: The affordability index is based on the ratio of average weekly ordinary time earnings to the income required to service the mortgage required to buy a median-priced dwelling with a 10 per cent deposit and a maximum debt service ratio of 30 per cent (assuming a 25-year loan at standard variable bank housing interest rates).
Source: Housing Industry Association – Commonwealth Bank, unpublished data on median first home prices, HIA-CB, 2008; Reserve Bank of Australia, Indicator Lending Rates, ‘Standard variable bank housing loans’, Statistical table F5, RBA, Canberra, 2008; RBA, Labour Costs, ‘full-time adult average weekly ordinary time earnings’, Statistical table G6, RBA, Canberra, 2008.
A profile of recent first home buyers is presented in Box 5.1.
Box 5.1: Profile of first home buyers
- There were 135,000 first home buyers in the year to March 2008 – this represents 17.4 per cent of all dwellings financed over this period.
- Almost all (95 per cent) of first home buyers in 2005–06 had a mortgage, compared with 82 per cent in 1995–96.
- Over two-thirds of first home buyer households with a mortgage were couples or couples with children. One-fifth were single persons.
- Home purchase rates are falling among 25–34 year olds.
- The average home loan for first home buyers was $261,000 in September 2008.
- The annual repayment on this average home loan was $26,900 at September 2008 (assuming a 25-year loan at standard variable bank housing interest rates).
- Annual interest on a standard variable loan had risen to an all-time high of $20,100 in March 2008 (in real terms).
- Average weekly disposable income before housing costs in 2005–06 was $1,200 a week ($62,400 per annum).
- Average weekly disposable income after housing costs in 2005–06 was 27 per cent higher than in 1995–96 but was unchanged from 1999–2000 at $800 a week ($41,600 per annum) in real terms.
Source: Australian Bureau of Statistics, Australian social indicators, cat. no. 4102.0, ABS, Canberra, 2008; Reserve Bank of Australia, Indicator Lending Rates, December 2008, table F5, RBA, Canberra, 2008; ABS, Housing finance Australia, November 2008, cat. no. 5609.0, ABS, Canberra, 2008.
Supply constraints are among the many reasons why some households might postpone entry into home ownership or choose not to buy when they appear to be able to afford to. Many of the limited number of dwellings that are affordable for aspiring first home buyers in metropolitan regions, for example, are smaller units that may be inappropriate for a young family with children. Alternatively, they may be located on the fringe of the city, where access to employment opportunities is often more constrained. The changing location of dwellings affordable for households with an average income can be seen in the upward shift in house price gradients for Melbourne (Figure 5.2). The constrained access to employment opportunities is shown in Figure 5.3. This also highlights concerns that low income workers who work and live in inner city areas experience significantly greater housing affordability problems compared with those who commute from the fringe, which could have implications for the availability of labour in certain locations and occupations. There has been some Australian research based on international categories of ‘key workers’ but this is an area where some more-targeted research could be valuable.50
The value placed on the greater amenity of well-located land is reflected in Figure 5.2 in the steepness of the house price gradient. The increased steepness of the gradient in 2006 reflects and highlights the impact of one of the key supply factors that affect housing affordability, that is, the increasing cost of well-located land.
Figure 5.2: Median house price by distance from CBD, Melbourne, 1996 and 2006 (nominal prices)
Source: SGS Economics & Planning Pty Ltd unpublished, 2008, based on: Department of Sustainability and Environment, A Guide to Property Values: Data and analysis from the Valuer-General Victoria using 2007 property sales information for residential, commercial, industrial and rural property, DSE, Werribee, 2007; Australian Bureau of Statistics, 1996 Census: Basic Community Profile, Melbourne, ‘B23 Household type by weekly household income’, cat. no. 2020.0 ABS, Canberra, 2000; ABS, 2006 Census Tables, Melbourne, ‘Gross household income (weekly) by household composition: count of occupied private dwellings’, cat. no. 2068.0, ABS, Canberra, 2007.
Figure 5.3: Total jobs accessible in Melbourne, 2006
Source: SGS Economics and Planning based on 2006 ABS Census, Journey to work by travel zone. Department of Transport (formerly Department of Infrastructure) Melbourne Integrated Transport model 2011 AM peak car travel line matrix. Metlink Melbourne (public transport times 23 July 2008).
Part of the effect of declining affordability can be seen in the high housing costs faced by lower income households that do choose to become home buyers. Figure 5.4 shows the proportion of home buyer households in the lowest 40 per cent and 50 per cent of the income distribution in 2005–06 with housing costs in excess of 30, 40 and 50 per cent of their gross household income. It also shows the same data for households wholly reliant on government income support.
- Almost 50 per cent of lower income home buyers in the bottom 40 per cent of the income distribution were in housing stress, with housing costs in excess of 30 per cent of their household income.
- Over 20 per cent had housing costs in excess of 50 per cent of their household income.
- Over 40 per cent of home buyers in the lower half of the income distribution had housing costs in excess of 30 per cent of their household income.
- Nearly 30 per cent of home buyers wholly reliant on government income support had housing costs in excess of 50 per cent of their household income.
Figure 5.4: Housing cost outcomes for home buyers, 2005–06
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
Affordability outcomes for lower income households with high housing costs represent one of the key indicators identified by the Council. These indicators are intended to provide a benchmark against which the future performance of the housing market might be assessed.
The numbers of home buyer households affected are presented under Key Indicator 3.51
Key Indicator 3 – Affordability outcomes for home buyers
This key indicator is the third in the set of six preliminary indicators drafted by the Council to provide a benchmark for further monitoring of housing demand and supply and related affordability outcomes.
- Number of households with equivalised disposable incomes below the 40th or 50th percentiles and paying more than 30 or 50 percent of their income in mortgage and other housing costs
| Proportion of income paid for housing |
Income percentile |
Whole of Australia |
Capital cities (a) | Balance of States (a) |
|---|---|---|---|---|
| >30 | <40 | 280,000 | 186,000 | 91,000 |
| >30 | <50 | 368,000 | 246,000 | 118,000 |
| >50 | <40 | 131,000 | 96,000 | 34,000 |
| >50 | <50 | 151,000 | 110,000 | 40,000 |
(a) Data do not include ACT and NT.
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
- Number of households wholly reliant on government income support payments and paying more than 30 or 50 percent of their income in mortgage and other housing costs.
| Proportion of income paid for housing |
Whole of Australia |
Capital cities (a) | Balance of States (a) |
|---|---|---|---|
| >30 | 31,000 | 20,000 | 11,000 |
| >50 | 17,000 | 11,000 | 6,000 |
(a) Data do not include ACT and NT.
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
These estimates are indicators of just one of the outcomes of declining affordability for home buyers. They do not reflect the pressures on households with housing costs below 30 per cent of household income but living in inappropriately small dwellings or experiencing high transport costs because their housing is located far from work or essential services.
Affordability issues for renters
Households with a preference for living in a larger dwelling and/or in a location with better access to amenities than they can afford to buy may have the option of renting rather than buying. Other households may have no choice but to seek accommodation in the private rental market. Both types of household add to pressures in the private rental market.
A profile of renters is presented in Box 5.2.
Box 5.2: Profile of renters
- Over 1.7 million households in 2005–06 rented from private landlords.
- Renters comprised 29 per cent of all households in 2005–06, compared with 27 per cent of households in 1995–96.
- Renters tend to be a younger group than owner–occupier households. In 2005–06, the median age for renters (based on the age of the household reference person) was 37 years, which was 15 years younger than the median age for owner–occupier households (52 years).
- In 2006, renters were three times more likely than owner–occupiers to have changed address within the previous 12 months. At the 2006 census, 35 per cent of people who were renting had lived at a different address within the last year, compared with only 10 per cent of owner–occupiers.
- In 2005–06, 32 per cent of all renter households were classified as low income households, and around three-quarters (74 per cent) of these low income renters were renting from a private landlord.
- There were an average of 944,000 individuals and families receiving Commonwealth Rent Assistance during 2007–08.
- The number of social housing dwellings has declined from around 400,000 in 1996 to 390,000 in 2008. Increasingly, social housing dwellings are being allocated to households with low incomes and complex needs.
- About three-quarters of households in social housing in 2005–06 were single persons or single-parent families.
Sources: Australian Bureau of Statistics, Australian social indicators, cat. no. 4102.0, ABS, Canberra, 2008; Commonwealth Department of Families, Housing , Community Services and Indigenous Affairs, Annual Report 2007–2008, FaHCSIA, Canberra, 2008; Australian Institute of Health and Welfare, Housing Assistance in Australia 2008, cat. no. HOU 173, AIHW, Canberra, 2008; AIHW: J Storer & D Wilson, Who receives priority housing and how long do they stay?, Bulletin series no. 63, cat. no. AUS 105, AIHW, Canberra, 2008; further sources referenced in Appendix 2, Table A5.2.
In the past decade, the extra demand on private rental housing has occurred at a time when high interest rates, reduced tax rates and increased opportunities for saving through superannuation have impacted on investor interest in the private rental market. Currently, vacancy rates are low (see Figure 5.5) and rents are rising in real terms (see Figure 1.1).
Figure 5.5: Rental vacancy rates, 1996–2008
Source: derived from Real Estate Institute of Australia, Market Facts, June Quarter 2008, REIA, Canberra, 2008 and historical data from the Market Facts series.
With minor exceptions, vacancy rates have shown a downwards trend since 2002 and, since March 2005, have been lower than 3 per cent in every capital city. Vacancy rates of around 3 per cent are considered the ‘industry norm’, and represent a good balance between demand and supply. Figure 1.1 shows the growth in real rents since vacancy rates began to decline in 2002.
Lower income renters in the private market
Lower income households have felt the brunt of pressures arising from low vacancy rates and higher rents. The burden on low income households in the private rental market is particularly extreme. For the period 1996 to 2006, ABS data indicate that the proportion of lower income private renter households in housing stress (defined as those in the bottom 40 per cent of the income distribution paying more than 30 per cent of their income towards housing costs) increased from 43 to 61 per cent.
Figure 5.6 shows the equivalent ABS data for private renter households in 2005–06 as shown in Figure 5.4 for home buyers. The data indicate that:
- Over 20 per cent of lower income private renters paid rents in excess of 50 per cent of their household income
- Nearly 80 per cent of private renters wholly reliant on government income support paid rents in excess of 30 per cent of their total household income including Commonwealth Rent Assistance
- Over 30 per cent of private renters wholly reliant on government income support paid rents in excess of 50 per cent of their total household income including CommonwealthRent Assistance.
These proportions would be lower if rents were defined as net of Commonwealth Rent Assistance, but without adding Commonwealth Rent Assistance to income. This is the methodology that is used by the Productivity Commission in its Annual Report on Government Services. Using this latter approach, Commonwealth Rent Assistance reduced the proportion of recipients assessed to be in housing stress in June 2008 from 66 per cent prior to receiving Commonwealth Rent Assistance to 36 per cent after taking Commonwealth Rent Assistance into account.
Figure 5.6: Housing cost outcomes for private renter households, 2005-06
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
The number of lower income private renter households with poor affordability outcomes, as identified by using ABS data, is presented below. Because more lower income households are renting privately rather than buying, there are more private renters in housing stress than there are home buyers in housing stress.
- In 2005–06, there were 439,000 households in housing stress in the private rental market. This represents 60 per cent of all lower income private renters (and 23 per cent of all private renter households). This compares with 280,000 (or 48 per cent) of lower income home buyers in housing stress
- By 2045, almost two-thirds of lower income private renters are projected to be in housing stress.52
Key Indicator 4 – Affordability outcomes for private renters
- Number of households with equivalised disposable incomes below the 40th or 50th percentiles and paying more than 30 or 50 percent of their income in rent.
| Proportion of income paid for housing |
Income percentile |
Whole of Australia |
Capital cities (a) | Balance of States (a) |
|---|---|---|---|---|
| >30 | <40 | 439,000 | 270,000 | 166,000 |
| >30 | <50 | 489,000 | 307,000 | 177,000 |
| >50 | <40 | 156,000 | 106,000 | 49,000 |
| >50 | <50 | 161,000 | 111,000 | 49,000 |
(a) Data do not include ACT and NT.
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
- Number of households wholly reliant on government income support payments and paying more than 30 or 50 percent of their income in rent.
| Proportion of income paid for housing |
Whole of Australia |
Capital cities (a) | Balance of States (a) |
|---|---|---|---|
| >30 | 148,000 | 81,000 | 66,000 |
| >50 | 59,000 | 41,000 | 18,000 |
(a) Data do not include ACT and NT.
Source: derived from Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.
Much of the reason for high levels of housing stress among private renter households arises because of an inadequate supply of affordable rental dwellings.
Impact of decline in social housing stock on low income renters
In the past, social housing has been a major component of housing supply for low income households. However, in the past decade, this stock has been in decline while demand has been increasing (see Figure 5.7). Social housing includes public rental housing, community housing, State–Owned and Managed Indigenous Housing (SOMIH), and dwellings funded under the Crisis Accommodation Program (CAP). Public rental housing and SOMIH dwellings are owned or leased and managed by the State and Territory housing authorities. Community housing and CAP dwellings are generally managed by non-profit community-based organisations.
As noted in Chapter 3, there was a shortfall of around 90,000 dwellings between the total number of social housing dwellings in 2008 and the number needed to maintain social housing dwellings at the same share of all dwellings as in 1996.
Figure 5.7: Social housing dwellings (number), 1996–2008
Note: An implication could be drawn from this graph that there was no unmet need for social housing in 1996. As at 30 June 1996, however, the Housing Assistance Act 1989 Annual Report 1995–96 indicated that there were 236,000 applicants on the waiting list for public housing.
Source: ‘Social housing shortfall’ derived from trend in growth of total dwellings from Australian Bureau of Statistics, 2006 Census Tables, Australia, ‘Dwelling Structure by Occupied/Unoccupied Dwellings, Time Series Statistic’, cat. no. 2068.0, ABS, Canberra, 2007; Commonwealth Department of Social Security, Housing Assistance Act 1989 Annual Report 1995–96, DSS, Canberra, 1997; further sources referenced in Appendix 2, Table A5.2.
Public housing supply has fallen as a long-term trend. This is due to public housing jurisdictions’ deteriorating recurrent financial outcomes, reduced capital allocations by the national and state and territory governments and governments’ preference for new social housing to be operated by the not-for-profit sector. The 1996 Commonwealth State Housing Agreement gave priority to targeting public housing to those most in need. Tighter targeting of public housing has meant that a growing number of tenants are on low incomes, have complex needs or are entering public housing at a time of significant crisis in their lives. This is impacting on revenue from public housing rents as well as costs.53
Impact of decline in low-rent private rental housing stock on low income renters
A decline in social housing could be mitigated or even desirable if it were accompanied by an increased supply of private rental dwellings that are available and affordable for lower income households by virtue of rents charged and/or rent assistance provided by government. However, there has also been a decline in low-rent private supply (see Figure 5.8):
- The total stock of dwellings in private rental grew between 1996 and 2006, but all of this growth was in dwellings with a rental value of at least $200 per week and most of it was in dwellings with a rental value of at least $300 per week (in 2006 dollars).
- In 2006, there were 236,000 more private rental dwellings than in 1996. However, there were 125,000 fewer dwellings with rents less than $232 per week (in 2006 dollars) than in 1996. In other words, the total supply of dwellings affordable for lower income households fell in absolute as well as relative terms.
Figure 5.8: Distribution of private rental dwellings, Australia, 1996, 2001, 2006
Note: rents are denominated in 2006 dollars.
Sources: Australian Bureau of Statistics, 2006 Census Tables, Australia, cat. no. 2068.0, ABS, Canberra, 2007; M Wulff et al., Australia’s private rental market: changes (2001–2006) in the supply of, and demand for, low rent dwellings, Australian Housing and Urban Research Institute project no. 50502, forthcoming; J Yates, M Wulf & M Reynolds, Changes in the supply of and need for low rent dwellings in the private rental market, Australian Housing and Urban Research Institute Final Report no. 61, AHURI, Sydney, 2004.
Between 1996 and 2006, however, real household incomes improved for most households.
- Between 1996 and 2006, there was an increase in the total number of private renter households with incomes above $1,028 per week (in 2006 dollars) and a decrease in the total number of households with incomes less than this.
- By 2006, there were 32,000 fewer households that could only afford to pay rents of less than $232 per week.
The net effect of the current rent distribution of private rental dwellings and the income distribution of private renters is a significant shortfall in the supply of private rental dwellings that are affordable for lower income households. In 2006 there was:
- an absolute shortage of 146,000 dwellings in the private rental sector with rents below $115 per week (affordable for those with gross household incomes below $20,000 per year and roughly in the first quintile of the income distribution)
- an ‘apparent surplus’ of 230,000 dwellings with rents below $232 per week (affordable for those with household incomes below $40,000 per year and roughly in the lowest two quintiles of the income distribution). This ‘apparent surplus’ is discussed in more detail later in this chapter.
As shown in Figure 5.9, these outcomes represent a worsening of the absolute shortage of private rental dwellings that are affordable for low income households in 2006 compared with equivalent estimates for 2001 or 1996.
Figure 5.9: Shortage and/or surplus of affordable private rental dwellings, 1996–2006
Note: Rents are in real terms as at 2006.
Sources: Australian Bureau of Statistics, 2006 Census Tables, Australia, cat. no. 2068.0, ABS, Canberra, 2007; M Wulff et al., ‘Australia’s private rental market: changes (2001–2006) in the supply of, and demand for, low rent dwellings’, Australian Housing and Urban Research Institute project no. 50502, forthcoming; J Yates, M Wulf & M Reynolds, Changes in the supply of and need for low rent dwellings in the private rental market, Australian Housing and Urban Research Institute Final Report no. 61, AHURI, Sydney, 2004.
When low-rent stock is of sufficient quality that higher income households compete with lower income households for it, the process of ‘filtering’ – which relies on higher income households vacating existing stock when new, higher-quality stock becomes available – fails. When this happens, the low-rent stock that does exist is not available for low income households.
Table 5.1 provides a snapshot of the private rental stock available in 2006. The secondlast column gives the shortage in the total number of dwellings affordable for households with a given level of income; the last column presents the shortage in the total number of dwellings that are both affordable and available.
Notes:
‘Affordable’ means rent is less than 30 per cent of household income; ‘available’ means dwelling is not occupied by a higher income household.
n.a.: not applicable. (Affordability estimates based on a housing stress measure are restricted to the bottom two quintiles.)
Source: M Wulff et al., 'Australia’s private rental market: changes (2001–2006) in the supply of, and demand for, low rent dwellings', Australian Housing and Urban Research Institute project no. 50502, forthcoming.
The following points are noteworthy:
- In 2006, only 91,000 dwellings were affordable for the 237,000 private renters in Australia with incomes in the first income quintile
- Of these, 56,000 dwellings were occupied by households in higher income quintiles. This results in an increase from a shortfall of 146,000 affordable dwellings to a shortfall of 202,000 affordable and available dwellings for those in the lowest quintile
- For the 600,000 private renter households in the lowest two quintiles of the income distribution, there were 830,000 affordable private rental dwellings
- 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
- Overall, 58 per cent of all private rental dwellings are not available to households in the bottom two quintiles because they are occupied by households in the top three quintiles.
Higher income households occupying the only dwellings that are affordable for lower income households benefit by having rents that are less than 30 per cent of their household income, and often significantly less. Lower income households that are unable to access affordable housing, either because there is an inadequate total supply or because the limited supply that does exist is rented to those with a higher capacity to pay, are forced into housing stress by virtue of having to pay 30 per cent or more of their income in rent.
Key supply indicators for affordability
In developing key supply indicators for affordability, the Council considered the measures of affordable housing supply established by the US Department of Housing and Urban Development (HUD),54 which cover not only affordability for households in a particular income range, but also availability and adequacy of that supply. The Council considers that further work is needed to broaden the scope of these indicators to encompass measures of additional variable costs related to housing, such as travel and/or access to employment, housing lifecycle costs (maintenance), utilities, and adequate housing measures relating to quality of construction and current condition.
The estimates below approximate those established by HUD and give simple estimates based on data available from the 2006 Census. More sophisticated estimates will be developed for future reports as suitable data become available.
Key Indicator 5 – Affordable housing supply for lower income renters
Shortage of dwellings affordable to households with equivalised disposable incomes below the 40th or 50th percentiles.
| Proportion of income paid for housing |
Income percentile |
Whole of Australia |
Capital cities | Balance of States |
|---|---|---|---|---|
| >30 | <40 | –230,000 | –123,000 | –107,000 |
| >30 | <50 | –394,000 | –265,000 | –130,000 |
Note: Negative numbers imply a surplus.
Key Indicator 6 – Affordable and available housing supply for lower income renters
Shortage of dwellings affordable and available to households with equivalised disposable incomes below the 40th or 50th percentiles.
| Proportion of income paid for housing |
Income percentile |
Whole of Australia |
Capital cities | Balance of States |
|---|---|---|---|---|
| >30 | <40 | 250,000 | 160,000 | 90,000 |
| >30 | <50 | 310,000 | 190,000 | 120,000 |
Note: Numbers are rounded to the nearest 10,000.
Changing Australian Government policy and programs
Consistent with its election commitments, the Australian Government is implementing a range of measures to address homelessness, increase social housing supply and improve housing affordability for owners and renters. The new National Affordable Housing Agreement is a key initiative.
Box 5.3: National Affordable Housing Agreement
The Australian and State and Territory governments have signed a new National Affordable Housing Agreement to apply from 1 January 2009. The new agreement brings together former Specific Purpose Payment funding for affordable housing and homelessness into a single, overarching housing agreement involving all levels of government. This includes funding previously provided through the Commonwealth State Housing Agreement and the Supported Accommodation Assistance Program. The new agreement will provide $6.2 billion worth of assistance in the first five years.
The new agreement has united all levels of government to undertake reforms in the housing sector, including to: improve integration between the homelessness service system and mainstream services; reduce concentrations of disadvantage that exist in some social housing estates; improve access by Indigenous people to mainstream housing, including home ownership; enhance the capacity and growth of the not-for-profit housing sector; increase capacity to match new housing supply with underlying demand, including as a result of work undertaken by the National Housing Supply Council; and allow for greater efficiency in the supply of housing.
The National Affordable Housing Agreement provides the framework for three new affordable housing National Partnership Agreements that are targeted at social housing, homelessness and remote Indigenous housing. These new agreements will improve housing outcomes for low income families, homeless people and Indigenous Australians living in remote areas. The new agreements incorporate $1.6 billion of new Australian Government investment over five years. This includes $400 million for building new social housing dwellings.
A related important set of initiatives is embodied in the Australian Government’s White Paper on homelessness, The Road Home: A National Approach to Reducing Homelessness, released in December 2008.55
50. BankWest, Key worker housing affordability
report, BankWest Financial Indicator Series, BankWest, Perth, May 2008,
<www.bankwest.com.au/Media_Centre/BankWest_Research>.
The report tracks housing affordability for five groups of key public sector
workers – nurses, teachers, police officers, firefighters and ambulance
officers in 540 local government areas across Australia.
The Australian Housing and Urban Research Institute (AHURI) has also published
research on housing affordability, occupation and residential location of
working households in Sydney, Melbourne and south-east Queensland. See J Yates,
B Randolph & D Holloway, Housing affordability, occupation and location
in Australian cities and regions, Australian Housing and Urban Research
Institute Final Report no. 91, AHURI, Sydney, March 2006. The research focused
on four ‘indicator’ occupations – nursing professionals,
cleaners, hospitality workers and computing profession.
51. These estimates include approximately 20,000 households with very low reported incomes and with rents in excess of their total income.
52. J Yates, H Kendig et al., Sustaining fair shares, p. 54.
53. J Hall & M Berry, Public housing: shifting client profiles and public housing revenues, Australian Housing and Urban Research Institute Final Report no. 108, AHURI, Melbourne, November 2007, p.1.
54. United States Department of Housing and Urban Development, Affordable housing needs 2005: report to Congress, US Department of Housing and Urban Development, Office of Policy Development and Research, Washington, DC, May 2007, <www.huduser.org/publications/affhsg/affhsgneeds.html>.
55. Australian Government, The Road Home – A National Approach to Reducing Homelessness, Canberra, December 2008.