Rental housing still not affordable

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1 For Immediate Release Monday, 25 th September 2006 Registered Office 55 Johnston Street Fitzroy 3065 Admin Fax ACN ABN Rental housing still not affordable Rental housing affordability has not improved and in many cities has declined in the last 12 months, according to the second National Affordability Bulletin released today by the Tenants Union of Victoria. This bulletin highlights the shortage of affordable rentals and the failure of the Commonwealth Government to ensure affordability for low income Australians. In particular it highlights that even those who receive Commonwealth Rent Assistance are unlikely to be able to find affordable rentals in our capital cities, said David Imber, Policy and Liaison Worker said. The bulletin, which measures the availability of private rental housing for a range of household types, including singles in all Australian capitals (except for Darwin) shows that for hundreds of thousands of Australians, particularly those on certain Centrelink payments, there is nowhere for them to live without experiencing poverty. The bulletin shows once again that Canberra has the lowest level of affordability with singles finding it harder to rent affordably than couples or those with children. The findings of this study are shocking and should be a call to action for the Commonwealth Government. For example, young single job seekers living alone cannot find affordable rental housing in any capital city. How are they supposed to be job ready if they are forced out of our cities or are living in unaffordable housing? Housing Ministers from across the country will be meeting in Canberra this Friday with housing affordability on the agenda. We call on the Commonwealth to use this meeting as an opportunity to announce the development of a national affordable housing agreement that includes reform of rent assistance and commits to expanding the supply of affordable housing. We have always believed that it s vital to have the debate on housing affordability based on sound evidence rather than sound bites on land supply. Having presented a snapshot of outcomes for 5 different income types we call on the Federal Government, as the providers of income support and rent assistance, to commit to a national housing plan that includes providing genuine housing affordability David Imber said For further information or comment please contact: David Imber, Policy & Liaison Worker or (03) of 2

2 The Tenants Union of Victoria released its first national affordability bulletin to coincide with the meeting of State and Territory Housing Ministers in October The 5 different income types - including a young person on New Start, a Sole Parent with one child and a couple with two dependent children - have been chosen as they represent the most likely profile of a Commonwealth Rent Assistance recipient. The sad fact is that no matter what measure of affordability you use the outcomes aren t very good for large numbers of Australians who are unable afford private rental housing without living in poverty. State and Territory Governments should also strengthen rights for tenants in the light of many renters being unlikely to ever be able to afford to leave the rental market. Note to Editors: There have been ongoing policy debates about poverty and what constitutes affordable housing. This bulletin presents three common ways of calculating the amount of money a person or family would have to spend on rent using the standard public housing rental of 25% of income, 30% of income and the After Housing Income Henderson Poverty line measures of housing affordability. The tables provide details of the amount of properties available for rent in those capitals for based on the amounts of money the person or family would have to spend on rent according to that affordability measure. For further information or comment please contact: David Imber, Policy & Liaison Worker or (03) of 2

3 Rental Housing Affordability Bulletin A National Perspective September 2006 The Private Rental Market and Low Income Households Nearly 1.7 million Australian households (accounting for 21% of total households) reside in the private rental market. i Around ii of these households are low income (defined as being in the lowest 40% of income distribution). Over the past twenty years, there has been a clear shift in policy away from the provision of housing assistance through placement in public housing, and increased reliance on the private rental market as the primary source of accommodation for low income households. This shift in policy has occurred despite an overwhelming body of evidence demonstrating that the private market is failing to provide a sufficient supply of appropriate and affordable housing and that low-income households in the private rental market are particularly vulnerable to poverty. Recent data from the Real Estate Institute of Australia (REIA) demonstrates that rents are becoming substantially more expensive in Australia s capital cities: Median rent increases over the year to June 2006 have outpaced the 4% annual CPI increase in many areas. Notable increases occurred in Sydney, Canberra, Melbourne, Brisbane and Adelaide. Perth and Hobart experienced double-digit growth in rents over the year to June iii Approximately 590,000 households in the private rental market are already struggling with housing stress. Housing stress is defined as spending more than 30% of disposable income on housing and being in the bottom 40% of income distribution. iv Concurrent with increases in the cost of rent, there is an acute shortage of low to moderate cost rental dwellings in Australia s capital cities. v In particular, Sydney, Melbourne and Canberra are identified as cities where there is an insufficient supply of affordable housing available to meet increasing demand. vi This is amply demonstrated by current vacancy rates in our capital cities. The vacancy rate measures of the amount of unoccupied rental property in a given area. It indicates the availability of property in the market - a higher percentage indicates that greater supply of homes to rent, and a lower figure connotes a tighter supply. Historically, vacancy rates approaching 2% are associated with higher rents and a greater incidence of rent increases. As increased demand outstrips supply, landlords are encouraged to seek higher rents to offset perceived poor yields and weakening capital gains prospects. Currently, vacancy rates are 2% or less in Adelaide, Melbourne, Perth and Canberra; Sydney, Brisbane and Hobart have all recorded rates under 2.3%. vii Exacerbating this shortage is the tendency of higher income households to trade down and occupy dwellings at the low-to-moderately priced end of the rental market in an effort to minimise their housing costs. viii This may assist more prosperous households to save for a deposit on their own home, but increased competition for a diminishing number of properties makes it even more difficult for low-income households to secure affordable housing. Media Contact: David Imber, Policy and Liaison Worker (September 2006) 1 of 6

4 The Role of Commonwealth Rent Assistance The principal means by which housing support is provided by the Federal Government is Commonwealth Rent Assistance (CRA). CRA is an income supplement paid to recipients of government income support (excluding Austudy) in recognition of the increased costs of securing housing in the private rental market. The Federal Government spends nearly $2.1 billion on CRA annually. ix However, despite the sheer amount of money spent, the evidence indicates that CRA is failing to make housing affordable for those on low incomes: Of the recipients of CRA, 35% ( recipients) spend 30% or more of their weekly income on housing. x This means that, despite the additional income represented by CRA, over one-third of recipient households are likely to be experiencing financial disadvantage as a direct result of the prohibitive costs of rent in the private market; Eligibility for CRA is restricted to receipt of certain other forms of government income support, so xi 53,375 students on Austudy are expected to pay all of their educational and living costs on $ per week Minimum and low wage earners do not qualify, despite high rents in the private market consuming a significant proportion of their limited incomes. Despite being the primary form of housing assistance targeting the private rental market, it has absolutely no effect on the many other issues making rental accommodation less affordable, particularly the supply of low cost housing. CRA also has no effect on the location of rental housing in relation to job opportunities and community infrastructure or the standard and quality of the housing that is available. What is affordable housing? There is no one agreed definition of affordable housing. A number of benchmarks of housing used in different contexts, and there is little agreement about which standard provides the most accurate outcome. For this Bulletin, the Tenants Union of Victoria has utilised three well-recognised standards: 30% of Income: A housing first measure of affordability originally derived from commercial lending terms. The assumption is that housing costs have first priority out of the household income. For low income households (defined as being in the lowest 40% of income distribution), spending 30% or more of household income on rent is considered an indicator of housing stress. 25% of Income: This is the proportion of income charged as rent for public housing in most Australian states. Henderson Poverty Line (HPL) After Housing Income: Poverty lines are income levels derived for various household types against which poverty can be measured. Simply, if a household s income is less than the poverty line applicable to it, then that household is considered to be in poverty. The Henderson Commission of Inquiry into Poverty (1975) established the poverty line, based on a benchmark income of $62.70 for a family of two adults and two dependant children in the September quarter of This amount was the disposable income required to support the basic needs of a family of this size. Poverty lines for other households types are derived from this benchmark figures using equivalence scales. Media Contact: David Imber, Policy and Liaison Worker (September 2006) 2 of 6

5 Since then, the Melbourne Institute of Applied Economic and Social Research has updated the HPL using an index of per capita household disposable income, calculated using estimates provided by the Australian Bureau of Statistics (ABS). Thus, because the index is based on estimates, the poverty lines themselves are estimates. Also, updating poverty lines according to changes in household disposable income means that the poverty lines are relative levels of poverty - as real incomes rise, so will poverty lines. The value of the poverty lines will therefore be generally stable relative to general standards of living. Two poverty lines are calculated: the HPL including housing costs and the After Housing HPL, or HPL from which the cost of housing has been removed. All three of these benchmark have been included in our analysis (see Tables overleaf). The Tenants Union of Victoria supports a practical approach to the issue of affordability, believing that it is best demonstrated by households having sufficient income left over after paying their direct housing costs (ie their rent) for the other necessities of life. The following analysis highlights two indicators demonstrating the failure of the private rental market to affordably house low income Australians: The amount of income households have left at the end of the week after paying their housing costs; and The number of affordable properties available in the private rental market. Our analysis is limited to direct housing costs ie: rent. However, a more exact measure of housing affordability would factor in utilities and other housing-related expenses. Affordability Across Australia A Crisis in our Capital Cities To provide a practical demonstration of the acute shortage of affordable housing in our capital cities, the Tenants Union conducted a simple survey to determine just how many affordable rental dwellings were available on Thursday, 21 September Firstly, we calculated what affordable rents were for a number of different household types according to the above 30% and 25% of income and After Housing HPL benchmarks described above. We then plugged these figures into the online property database to determine whether there were any properties available to rent at a rate that would not cause financial hardship to tenants. The results are detailed in the Tables overleaf. Our analysis clearly demonstrates that locating affordable housing in the private rental markets of Australia s capital cities is extremely difficult, and in some cases impossible, for low-income Australian households. No matter how you calculate it, housing is not affordable for a significant proportion of Australia s low-income renter households. It is important to note that the data presented relates only to the affordability and availability of rental dwellings; it does not address the related (and equally pressing) issues of the quality and standard of housing stock, and the location of available housing in relation to jobs and community infrastructure (such as hospitals and health care services, schools and other educational institutions, and government and community centres). Media Contact: David Imber, Policy and Liaison Worker (September 2006) 3 of 6

6 1. Single person (> 21yrs) on Newstart Allowance, living alone For a one bedroom unit: 30% Income $68 $68 $68 $68 $68 $68 $68 No. properties available After Housing Income $ $ $ $ $ $ $ % Income $54 $54 $54 $54 $54 $54 $54 No. properties available After Housing Income $ $ $ $ $ $ $ After Housing HPL $64 $64 $64 $64 $64 $64 $64 No. properties available After Housing Income $ $ $ $ $ $ $ This example is the most stark of the bulletin and indicates the dearth of unaffordable properties for singles on low Centrelink incomes. The level of CRA available to a single person on Newstart does not provide them with a sufficient income to be able to afford any properties without them going into poverty. Singles in this situation usually move further away from cities to find housing they can afford however affordable rentals are usually only found where jobs are scarce which can push this group into poverty. 2. Single person (>21 years) on Newstart Allowance, sharing For a half share of a two bedroom flat 30% Affordable Rent $68 $68 $68 $68 $68 $68 $68 No. properties available After Housing Income $ $ $ $ $ $ $ % Affordable Rent $54 $54 $54 $54 $54 $54 $54 No. properties available After Housing Income $ $ $ $ $ $ $ After Housing HPL $64 $64 $64 $64 $64 $64 $64 No. properties available After Housing Income $ $ $ $ $ $ $ This table indicates that even sharing does not make a great deal of positive difference to affordability for job seekers. While many might think sharing increases affordability outcomes the Commonwealth actually reduces the level of rent assistance to sharers by about one third. This inequity should be addressed as part of reform of CRA. Media Contact: David Imber, Policy and Liaison Worker (September 2006) 4 of 6

7 3. Sole Parent with one child (7yrs) on Parenting Payment and FTB For a two bedroom unit 30% Income $126 $126 $126 $126 $126 $126 $126 No. properties available % After Housing Income $ $ $ $ $ $ $ % Income $100 $100 $100 $100 $100 $100 $100 No. properties available After Housing Income $ $ $ $ $ $ $ After Housing HPL $189 $189 $189 $189 $189 $189 $189 No. properties available After Housing Income $ $ $ $ $ $ $ While the Commonwealth has provided increased assistance for parents with children over recent years this table shows that it is barely sufficient to be able to find affordable housing. In Canberra the outcomes are particularly stark with no properties available at any affordability measure but in most other cities there is barely any housing available at the 25% or 30% measure. 4. Couple & two dependant children (aged 15 and 12) receiving Newstart Allowance For a three bedroom house 30% Income $180 $180 $180 $180 $180 $180 $180 No. properties available After Housing Income $ $ $ $ $ $ $ % Income $146 $146 $146 $146 $146 $146 $146 No. properties available After Housing Income $ $ $ $ $ $ $ After Housing HPL $182 $182 $182 $182 $182 $182 $182 No. properties available After Housing Income $ $ $ $ $ $ $ Unemployed couples with children are faced with low levels of affordability with barely any properties available at any affordability measure. Such low levels of affordability and research done by the Tenants Union indicate that these families are likely to move further away from the capitals. While outer suburbs and satellite towns have relatively more affordable housing they often have poor transport, employment and community services. Media Contact: David Imber, Policy and Liaison Worker (September 2006) 5 of 6

8 5. Single person on minimum wage ($ per week) For a one bedroom unit 30% Income $ $ $ $ $ $ $ No. properties available After Housing Income $ $ $ $ $ $ $ % Income $ $ $ $ $ $ $ No. properties available After Housing Income $ $ $ $ $ $ $ After Housing HPL $245 $245 $245 $245 $245 $245 $245 No. properties available After Housing Income $ $ $ $ $ $ $ This table indicates that for those on the minimum wage there are some levels of affordable housing in every capital except for Canberra although the numbers are generally lower than last year. While it is pleasing to see that some properties are available for those in this group they are highly susceptible to any changes in the value of the minimum wage or rises in the cost of basic goods and services. i Australian Bureau of Statistics, ABS Yearbook 2006 ii Australian Bureau of Statistics, Housing Occupancy and Costs iii Real Estate Institute of Australia (REIA), Real Estate Market Facts June Quarter 2006 iv National Centre for Social and Economic Modelling, Trends in Housing Stress, Paper presented at the National Summit on Housing Affordability, Canberra 28 June 2004 v see Australian Housing and Urban Research Institute (AHURI), Changes in supply and need for low rent dwellings in the private rental market, 2004 and Andrew Beer, Housing Affordability and Planning in Australia (paper presented to the Housing Studies Association Spring Conference, Belfast 2004) vi AHURI, ibid. vii REIA, see note iii. viii AHURI, see note v. ix Department of Family, Community Services and Indigenous Affairs (FACSIA), Annual Report x FACSIA, ibid xi Department of Education, Science and Training (DEST), Annual Report Media Contact: David Imber, Policy and Liaison Worker (September 2006) 6 of 6