Heat is on Australian rental markets as would-be buyers opt out
New data reveals rents are accounting for greater percentages of household incomes
2 min
Pressure on Australia’s rental market continues to mount, with rental affordability at its highest level in almost a decade, new research has found.
The ANZ CoreLogic Housing Affordability Report has revealed that rent now accounts for almost a third of household income for a median income household, the highest level since June 2014. The situation for lower income households is even more stressed with those at the 25th percentile income level spending 51.6 percent of their earnings on rent.
Sydney topped the list of least affordable places in the country with on average 51.6 percent of income going to service a new mortgage, while it would take 12 years to save for a 20 percent deposit. The result is more would-be homebuyers are being pushed out of the housing market and into rentals.
The report also found that rental vacancy rates are at 1.1 percent nationally, down from a decade average of 3 percent.
CoreLogic Australia head of research Eliza Owen said there was no relief in sight for renters anytime soon as the construction industry felt the impact of interest rate rises.
“As rents have risen sharply, the increase in the cash rate, and pressures in the construction sector have slowed the rate of dwelling completions. This has meant investor conditions are not ideal, and has stemmed the flow of new rental properties to the market,” Ms Owen said.
“Through February and March ABS lending data has shown signs of an increase in investment borrowing, but it will take some time for a supply response to ease pressures in the rental market.”
ANZ senior economist Felicity Emmett said uncertain conditions had also impacted on the amount of existing housing stock going to market.
“Heightened economic uncertainty has seen a decline in sales volumes in the private market and an increase in those seeking rental accommodation. Paired with a decline in social housing, rental demand pressures are being felt in all income brackets,” Ms Emmett said.
Borrowers cannot control the Reserve Bank, but they can control how exposed their household budget is to its next decision. The RBA meets on 29 September with inflation concerns still elevated and major-bank economists increasingly bringing forward their rate-rise calls. Fixed mortgage rates have also been moving, reducing the value of waiting for perfect certainty. …
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2 minBorrowers cannot control the Reserve Bank, but they can control how exposed their household budget is to its next decision.
The RBA meets on 29 September with inflation concerns still elevated and major-bank economists increasingly bringing forward their rate-rise calls. Fixed mortgage rates have also been moving, reducing the value of waiting for perfect certainty.
The first task is to calculate the impact of another 0.25 percentage-point increase. Indicative Canstar figures reported earlier this month suggest that such a move would add about $91 a month to repayments on a $600,000 loan, $122 on $800,000 and $152 on $1 million, although actual changes depend on rate, term and loan structure.
The second task is to compare the current loan with the market. Borrowers should examine the interest rate, annual package fee, offset balance, redraw rules and the revert rate on any expiring fixed portion. A lower advertised rate is not necessarily a better deal after fees, lost features or refinancing costs.
Third, test the household budget at least one percentage point above the current rate. This is not a forecast; it is a resilience exercise. Include council rates, strata, insurance, maintenance, school costs and realistic discretionary spending. Investors should also allow for vacancy and repairs rather than assuming uninterrupted rent.
Fourth, contact the existing lender before lodging multiple applications. A borrower with a sound repayment history may be able to negotiate a discount without refinancing. If the offer is weak, obtain comparable quotes and seek advice on whether changing lenders will genuinely improve the position.
Fifth, preserve liquidity. Using every available dollar to reduce principal may feel prudent, but an offset account can provide interest savings while retaining access to cash. The right structure depends on tax position and loan purpose, particularly where owner-occupied and investment debt coexist.
Borrowers considering a fixed rate face a trade-off. Fixing can provide repayment certainty, but may restrict additional repayments, offsets or early exit. Splitting a loan can diversify rate exposure without removing risk.
The worst time to examine a mortgage is after repayments have become unmanageable. A review conducted now gives borrowers more choices: renegotiate, refinance, adjust spending or build a buffer while their record remains strong.
Borrower checklist
Calculate: Repayments after a 0.25 and one percentage-point increase.
Compare: Rate, fees, offset, redraw, cashback conditions and total cost.
Review: Fixed-rate expiry, interest-only expiry and remaining loan term.
Protect: Emergency liquidity and insurance.
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