The Australian residential rental market is not working for anyone, with renters facing acute affordability challenges and rising insecurity while most landlords would be better off putting their money into superannuation.
These are the key findings of new analysis into Australia’s private rental market, which argues the system is ‘broken’ and that delivering long-term solutions for the 2.9 million households that rent, and the nation’s 2.2 million property investors, relies on addressing the incompatibility between renters’ need for security and landlords’ need for flexibility.
LongView and PEXA today release the second instalment of a three-part series that explores the origins of the nation’s housing crisis – for buyers and renters – and looks to offer fresh solutions. The series of whitepapers brings together analysis of decades worth of data and LongView and PEXA’s deep experience in the property sector.
The second instalment – Private renting in Australia: a broken system – focuses on the twin challenges of rental affordability and rental experience. However, it also identifies that the private rental system is not working for two thirds of the nation’s 2.2 million property investors either.
Exclusive analysis conducted for the Whitepaper reveals that the median total post-tax return of investment properties held for 4-10 years between 1990 and 2020 is just 6.3%, using standard assumptions. This compares with the post-tax return of 7.4% from a balanced superannuation fund, which involves considerably less risk and is much lower-maintenance.
Other key findings from the whitepaper include:
- The number of renters is increasing across all socio-economic groups and household types, with more than one in four households now renting
- Deteriorating purchase affordability has led to an increasing number of households remaining in rental properties on a permanent basis
- Tenure insecurity is poor, with 36.5% of renters moving three or more times in the past 5 years, and 21% of all tenancies terminated by the landlord
- Historically, rent costs have grown at one third of the rate of house prices and have matched median incomes, but have significantly outpaced pensions and other welfare benefits
- Vacancy rates are at the lowest they have been in over two decades in Sydney, Melbourne and Brisbane, with many property managers reporting the most rapid rent increases they have seen
- The current system contributes to Australian renters having one of the worst rental experiences in the developed world
- IInvesting in property is frequently more involved, more complex and less financially rewarding than landlords expect, with overall returns comparable to lower-risk, lower-effort investments
- Half of all investment properties exit the rental market within five years, creating even more insecurity among renters.
LongView Executive Chair Evan Thornley said one of the most compelling findings of the research was that despite perceptions of wealthy landlords, the private rental market was not delivering for property investors, with the system structured in a way that resulted in even worse renter experiences through increased tenancy insecurity and poorer housing stock.
“There is a misplaced idea that a battle between landlords and tenants exists – in actual fact, the Australian rental framework has been broken for decades, and is not working for either party,” Mr Thornley said.
“Secure shelter provides people with the feeling of dignity and security, enabling us to build relationships and feel part of a community. So the fact that we are facing the biggest rental crisis in a generation should be of concern to all of us.
“For landlords, investment is often more complex, stressful, and risky than originally anticipated. It can be much more time-consuming than expected, with a range of unanticipated maintenance costs. And 60% of landlords get returns lower than if they had put their money into superannuation. In most cases, this is because they bought poor-performing properties.
This partly explains why half of all investment properties exit the rental market within five years, and with rising interest rates, this figure could become much worse. With sale the most common reason for landlord-initiated lease terminations, the poor experience of landlords is closely related to the insecurity that underpins poor rental experiences for renters in Australia.
“The status quo creates problems for both renters and landlords. Solutions to these challenges need to create a greater separation between the needs of individual landlords and individual tenants, to create a system that works for everyone. Only then will Australia’s private rental market serve the interests of renters and landlords in a way that is sustainable over the long term.”
PEXA Chief Executive Officer Glenn King said that despite representing a significant portion of the housing market, the private rental system was plagued by a number of issues that have resulted in suboptimal outcomes, particularly for low-income families and the vulnerable.
“Australia is already one of the hardest places in the developed world to be a renter,” Mr King said. “The biggest problem is insecurity – long term leases are rare, and renters live with constant uncertainty about whether they will have to move. For renters who are constantly required to move, this impacts their ability to feel part of a community, it affects continuity of schooling for children, and renters often face unexpected moving costs – often thousands of dollars per move – which could push many on low incomes into greater levels of financial stress.
“Maintenance is often a headache and there are few incentives for the landlord to improve properties, for example through energy retrofitting. Renters often have limited ability to make minor alterations. These factors combined make it difficult for renters to make a home out of their rental accommodation.
“Although median wages have largely kept pace historically, rent is increasingly unaffordable for lower income people and some of Australia’s more vulnerable demographics. More concerning, the difficulty in acquiring and keeping private rental accommodation is a leading cause of homelessness.”
The upcoming final instalment of the Whitepaper series, to be released in the second quarter of 2023, will explore solutions to Australia’s three housing crises – housing affordability, rental affordability and rental experience.
For further enquiries:
Jane-Frances Kelly, Head of Strategy and Insights – LongView
P. (+61) 481 133 049 or E. email@example.com
Danielle Tricarico, Head of Corporate Affairs – PEXA