Housing stress easing for home owners but still an issue for renters

Low-income earners and single parents are among the Australian households who are regularly struggling to meet their housing costs, a new report released by the Bankwest Curtin Economics Centre today shows.

The report, Getting our house in order? BCEC Housing Affordability Survey 2019, features findings from the third BCEC Housing Affordability Survey of 3,600 households in Western Australia, New South Wales and Queensland.

It profiles how housing affordability has changed over time, and found that while median prices and rents have fallen due to a softening property market, this has not filtered down to low-income renters.

More than half (52 per cent) of private renters surveyed were regularly struggling to meet housing costs, compared to 38 per cent of those with a mortgage and 56 per cent of all single parent households.

Report co-author and BCEC Director, Professor Alan Duncan, said entry-level rents were creating housing stress, particularly for those on low and fixed incomes.

“About half of low-income single parents in WA who rent are in housing stress, spending more than 30 per cent of their incomes each week on their housing costs,” Professor Duncan said.

“In WA, we are seeing that about one-fifth of renters are paying more than 40 per cent of their income on housing costs, leaving little money left over to purchase essentials for themselves and their families.”

Professor Duncan said that a shortage of new, affordable rental properties coming onto the Perth market meant that real rental costs were not adjusting to alleviate the housing cost burdens faced by many low-income families.

“A typical family renting a mid-priced unit in Wanneroo would need to commit just under a fifth of their income in rent costs, but a lower income family would need to spend at least a third of their income on rent to afford even a lower-priced unit,” Professor Duncan said.

Report co-author Associate Professor Steven Rowley, Director of the Australian Housing and Urban Research Institute Curtin University Research Centre, said the report highlighted that low-income households were likely to be experiencing different levels of housing stress depending on whether they were renting or paying off their mortgage.

“Two thirds of households with a mortgage can afford non-essential expenditure after paying their mortgage compared to just half of private renters after they pay rent. Sustaining high housing cost burdens affects mental health outcomes for about half of households in housing stress,” Associate Professor Rowley said.

The survey found that saving for a deposit was the biggest barrier to home ownership, with survey respondents significantly underestimating the amount they would require for a realistic deposit. Government help to meet the deposit requirements of banks was considered important by three quarters of survey respondents looking to purchase in the future.

Associate Professor Rowley said that the WA Government’s Keystart scheme had proved very successful in bridging this deposit gap, and the Federal Government’s newly announced first home loan deposit scheme should look at the design of Keystart as a starting point.

“Low deposit home loans offer financially stable renters the option to transition into home ownership and the success of Keystart is one of the reasons WA has higher rates of first home buyers than any other state,” Associate Professor Rowley said.

“With a drive towards infill, particularly transit-orientated development around Metronet, Keystart should look to implement more flexible upper price limits tied to these key transit locations.”

Associate Professor Rowley said policy interventions, such as an alternative to the National Rental Affordability Scheme (NRAS), which was axed in 2014, could go some way to providing affordable housing for renters.

“State and federal governments should deliver a replacement for the NRAS, through the use of investor tax incentives and community housing providers, in order to deliver a subsidised private rental market to those households that cannot afford market-level rents,” Associate Professor Rowley said.

“Without government intervention, many tenants may find themselves unable to afford rent either when they lose their NRAS entitlements, or when rents start to rise again as demand in the housing market increases.

“However, we can’t expect state and federal governments to wear all the burden, and there is also a role for developers to play in delivering affordable housing. The direct provision of affordable units within new developments, or through financial contributions and subsidies, could go some way to providing diverse affordable housing options to suit varying household needs.

“Private sector investment can also lead to affordable, long-term and stable ‘built-to-rent’ housing, provided the Government creates favourable conditions for investment.”

Key findings from the report include:

Housing affordability in the West

• Perth ranks as the least affordable city in Australia in terms of the typical housing cost shares paid by renters, at about 27 per cent of income.
• Many low-income families on award wages or government payments are struggling to meet the rental costs of properties at the lower end of the market.
• The share of Western Australian homeowners with mortgages who pay at least 30 per cent of their incomes in housing costs fell from 38 per cent in 2011-12 to 33 per cent in 2015-16.
• About a fifth of WA’s renters paid in excess of 40 per cent of income towards housing costs.

Who can afford what and where?

• Typical (median) mortgage cost shares are about 34 per cent for single people and 31 per cent for single parents.
• Six in 10 single parent households now face housing cost burdens in excess of 30 per cent of income, up from 48 per cent in 2013-14.
• One in 10 single parents have to survive on low incomes and commit more than half of their income to cover their mortgage.
• Nearly half of single parents who live in rented accommodation have to survive on low incomes and commit at least 30 per cent of their income towards housing costs.
• One in five older aged renters face the combined pressure of low incomes and having to pay at least 40 per cent in rental costs.
• In the Fremantle and Vincent/Stirling South East areas, the median price house costs about 8.8 times the annual household income.
• Mandurah/ the Shire of Murray, Busselton and Albany have the highest price-income ratios across regional WA at both the median and lower quartile levels.

Key findings from the BCEC Housing Affordability Survey 2019

• In 2019, just over 45 per cent of respondents renting or owning with a mortgage were paying over 30 per cent of their income in housing costs. This was down from 48 per cent in 2017 and 49 per cent in 2015.
• 37 per cent of households paying over 30 per cent of their income in housing costs were forced into this position due to a lack of other options. This has increased from 31 per cent in 2015 and 32 per cent in 2017.
• While 62 per cent of couples with children chose to take on high-cost burdens, 55 per cent of one-person families were forced to do so. The balance for other household types was about 50:50.
• More than 80 per cent of households would suffer moderate or major impact on their finances if their housing costs were to increase by 10 per cent. These outcomes are far worse than the equivalents for 2015 and 2017.
• Just 35 per cent of households classifying themselves as very poor and 71 per cent of those with a gross income of less than $31,000 could meet essential expenditure after paying direct housing costs.
• More than 50 per cent of respondents in unaffordable housing stated it affects their mental health.
• In 2019, private renters had the most difficulty meeting housing costs with 52 per cent regularly struggling compared to 38 per cent of those with a mortgage. Even 22 per cent of outright owners had difficulty meeting their housing costs (including maintenance and running costs) on a regular basis.
• More than 23 per cent of regional WA households regarded their housing as unaffordable compared to just 17 per cent of metropolitan households.

Policy settings and implications

• The average deposit amount currently saved is a little over $14,000 while the average amount of respondents thought they would need was $64,000, a gap of some $50,000.
• The first home owner grant and stamp duty relief were regarded as important by well over half of respondents who had recently purchased their first dwelling.
• Stamp duty relief is essential. Ultimately, the abolition of stamp duty would have a major and positive, long-term impact on housing affordability.
• Funding for public housing needs to increase to deliver direct housing options for those households in greatest need and to provide a safety net for households falling out of the private rental market.

To read the full report, visit here.