Goodwill housing

While we’re all getting in the goodwill mood, Australians need to think seriously about this country’s housing problem. There isn’t enough of it to go around and what property is available is often out of the reach of low income households.

 Housing affordability chart

(Percentage of age groups with mortgages: ABS Surveys of Income and Housing)

This is no overnight thing. Tax concessions which favour property investors have led to a big swelling of their ranks – some 1.18 million. First there was negative gearing, re-introduced in 1985, which allows investors to claim rental expenses and interest on housing loans against their income. Second, the 50% capital gains tax exemption which property investors have enjoyed since 1999. Most invest on the expectation of future capital gain, rather than negative gearing benefits.

A 2014 article in The Conversation by Kate Shaw revealed that Australia’s GDP contribution of real estate transactions is the highest in the world – three times higher than in the US. Around one in seven Australian taxpayers owns one or more investment properties. Australia also has one of the highest levels of household debt in the OECD, due to mortgage borrowings.

As recent research on Australia’s rental market has found, those in the lowest 40% of gross income group struggle to meet rental costs and in capital city markets like Sydney or Melbourne pay up to 65% of their income for rental accommodation.

As a rule of thumb, low income earners paying 30% or more of their gross income in rent or mortgage payments are suffering housing stress.

Gavin Wood and Rachel Ong writing for The Conversation earlier this year underlined the growing problem of housing affordability. In 1982, the ABS survey of income and housing stated that 168,000 (or 10%) of home buyers spent more than 30% of their gross household income on housing costs. By 2011, those numbers had soared to 640,000, or 21% of all home buyers.

Wood and Ong also found that young first time buyers are finding it increasingly difficult to buy a home. As the chart above shows, the rate of home ownership in the 25–34 year age group slumped from 56% in 1982 to only 34% in 2011.

Wood and Ong say one in six Australians own two or more houses and 30% are holiday houses (2010 figures).

The Australian Housing Urban Research Institute (AHURI) says that while private rental is an important and growing part of our housing system, it has failed to serve the housing needs of low-income people. The 2006 ABS Census showed that 22% of households rent privately. In 2006, private renter dwellings numbered 1.47 million Australia-wide, an increase of 11 per cent since 2001.

But new research by A.C Nielsen for domain.com.au estimates that up to a third of Australians over 18 are renting, with higher proportions in the Northern Territory (43%) and Queensland (36%).

The stumbling block for people looking to rent a house or unit in a capital city is the up-front cost (usually a month’s rent and a bond (assuming $1000), not to mention storage and moving costs. FOMM figures the average establishment costs of a lease in one of five capital cities to be $2,828).

And domain’s rental market research shows it can be a short-lived reprieve, with 47% of Australians living in their current rental property for less than two years, and only 27% in the same property for more than five years.

Housing policy NGO National Shelter instigated the Rental Affordability Index as a response to media and political obsession with house purchase markets. The Index highlights the severe housing stress experienced by renting Australians. The report was produced by National Shelter, Community Sector Banking (CSB) and SGS Economics and Planning.

National Shelter executive officer Adrian Pisarski says the index fills major gaps in housing data, as it tracks household rents against household incomes in capital cities and regions across Australia.

“It reveals deterioration in our rental affordability, a result of 25 years of policy inadequacy and market failure. It shows why our low income households live in poverty and why life is a struggle, often a desperate one for moderate income working families.”

The RAI gives households who are paying 30% of income on rent a score of 100, a critical threshold for housing stress. A score below 100 indicates severe housing stress.

The report’s key finding is that while average rental affordability remained below 30% across all states, households in the lowest 40% of income consistently face severely and extremely unaffordable rents. This is the case in all regions of Australia. In the worst cases, non-family households are spending more than 60% of their income on housing (Sydney and Melbourne). Causes of homelessness, then, are shifting from traditional factors (escaping abuse, substance misuse, mental health issues), to being pushed out of the housing market by those with higher incomes.

People who are struggling to live on a government payment are the worst-affected by the crisis in affordable housing, according to the 2015 Anglicare Australia Rental Affordability Snapshot. The snapshot across all cities and regions shows that of the 65,500+ properties assessed for suitability, less than 1% were available for single people living on government allowances. Single people on the minimum wage would find 3.3% of these properties to be affordable. A working couple would fare better, with 23.8% of these properties suitable for their level of income. An age pensioner couple would find only 3.4% or 2,239 properties affordable.

Pisarski says the basic problem remains the lack of affordable rental properties and the lack of housing supply in general. He says one of the results is an emerging trends towards inter-generational living, with two and sometimes three generations under the one roof.

Australians are afforded little in the way of tenant protection, compared with cities in the US and Europe where rent controls and security of tenure are considered to be an important adjunct to social security.

Shaw makes a few broad comparisons between tenant legislation in Victoria and Germany. Rents can be increased in Victoria every six months with no limit on the amount (though the tenant may have grounds for appeal). In Germany, rent increases are capped at 20% every three years. In Victoria, 60 days is the standard amount of notice to vacate. In Germany notice varies according to how long the tenant has lived there: three months is the minimum for someone who has lived in the property for less than five years. Six months’ notice is required for a tenancy between five and eight years; nine months for longer than eight years.

In a perfect world, the Australian government would be looking to offer tax incentives to investors to rent to eligible (low-income) families at well below market rent. There was such a scheme, called the ‘National Rental Affordability Scheme’, but this only applied to investors building new dwellings, and as of September 2015, at least in Queensland, even this limited scheme was shut down:

To end this penultimate FOMM for 2015 on a cheery note, I read recently of one landlord who gave his tenants a one month ‘rent holiday’ as a Christmas present and thanks for being good tenants.