As has occurred in many other countries, housing policy in Australia has moved away from supply side measures (through the direct provision of public housing) to demand side responses (offering rent assistance to social security recipients). This change in policy has been predicated on two beliefs. The first is that low income, rather than the unavailability of low cost housing, is the prime contributor to problems of housing affordability in the rental sector. The second is that increased income support provides low income households with increased choice in the rental market. These beliefs presume the private rental market is a viable option for all households, will respond to changing demands made upon it, and will provide low income households with affordable choices.
However, while there is evidence over the decade to 1996 to support the claim that the private rental market is a robust market, there is little evidence to support the claim that it caters for a range of community needs. Over the past decade it has provided low income households with a decreased range of options. As a result, a policy of relying solely on rent assistance as a means of expanding affordable housing choices needs to be supplemented with some form of supply side measure.
These claims are supported by census data from 1986 and 1996 which reveal the changing structure of the private rental market. These data suggest that, whilst increased rent assistance may well be a necessary solution to housing affordability problems, in its current form and with current levels of funding it is by no means a sufficient solution.
Between 1986 and 1996 the number of households in Australia grew by 23 per cent, or just over 2 per cent per annum. At the same time, there has been a disproportionate growth in the number of households both at the lower end and at the upper end of the income distribution. In part this can be attributed to the effect of the aging of the population and changes in household structure. In part it arises from worsening employment conditions for some and improved conditions for others. There were more low paid workers in 1996 than in 1986 and there were fewer opportunities for full time employment. A few years ago Bob Gregory coined the phrase "the disappearing middle" to describe the outcomes of the numerous studies which have identified the increasing polarisation of income in Australia over the past few decades.
The expansion of low income households has placed increased pressure on the private rental market. Between 1986 and 1996 the number of households in private rental grew at 34 per cent, or at 3 per cent per annum, almost 50 per cent faster than the growth of households in the population. And the number of low income households in private rental grew at more than double the rate of all households in private rental.
Affordable housing shortages
Despite this disproportionate growth of low income households in private rental, not one more low cost dwelling was added to the private rental stock between 1986 and 1996. In 1986 there were almost a quarter of a million dwellings in Australia which could be rented for less than $100 per week. By 1996 this number had fallen by more than 70,000 dwellings or by 28 per cent. The table summarises these changes. With the exception of Sydney, which faced a massive 61 per cent decline in its low cost stock, the biggest percentage losses in low cost rental stock have been in non-metropolitan Australia. Australia as a whole lost 28 per cent of its low cost stock; metropolitan Australia lost 22 per cent whilst non-metropolitan Australia lost 33 per cent.
For the increased numbers of households on incomes of no more than $300 per week, this represents a loss of affordable rental stock at the rate of more than 7,000 dwellings a year. This loss occurred when the number of such low income households in the private rental sector grew to almost a quarter of a million households. As a result, there is now a significant shortage of low cost stock.
These shortages of low cost stock are most extreme in metropolitan Australia because of the higher numbers of low income households in the cities. The shortages in each of our metropolitan cities are no longer limited or even worse in inner city zones. Within Sydney, Brisbane and Adelaide there are significant shortages of low cost rental housing in the outer zones of these cities as a result of the growth of low income households in private rental. In non-metropolitan regions there also have been significant declines in low cost stock, with non-metropolitan NSW and Queensland experiencing shortages.
An initial Australia wide estimate of the shortfall of affordable private rental housing for those on incomes of no more than $300 per week in 1996 is around 50,000 dwellings. This estimate presumes that the low cost stock which does exist is available for low income households. In 1996, however, 58 per cent of the low cost stock was occupied by households who could afford to pay at least $50 a week more in rent and would still not be paying more than 30 per cent of their income in meeting their housing costs. In other words, only 42 per cent of the low cost stock was available for low income households. While there are obvious disadvantages to having low income households in unaffordable rental stock, it is not at all clear that it is a disadvantage to have high income households in low cost stock. The major disadvantage is that their use of the stock means that the earlier estimate of a shortage of low cost stock of 50,000 has to be increased to 150,000.
Supply response needed
When there is no low cost stock available, low income households are forced to rent housing which is not affordable. They have no other choice.
At present we are facing considerable uncertainties in relation to the impact of tax reform on the cost of housing and on investment opportunities. There has been little attention paid in the current discussion of the impact of tax reform to the impact of changes on investment at the low end rather than the top end of the rental market. Given the current trends in our rental stock, the absence of such discussion is of some concern.
Without a supply response, the restructuring of household incomes on the housing market will continue to have its greatest impact on low income households in the private rental market. These low income households are those for whom housing opportunities are increasingly limited. They are households increasingly located in the outer zones of our metropolitan cities and in non-metropolitan Australia.
This is an abbreviated version of a longer paper written by Judith Yates and Maryann Wulff for presentation at the National Housing Conference in Sydney in November. The results reported here are based on research undertaken for an Australian Housing Research Foundation project on Private Rental undertaken in collaboration with Maryann Wulff and Terry Burke.