Rising house prices are changing the dynamics of the rental property market, with higher levels of rental stress experienced by low-income tenants.
We explore rental stress in more detail: what it is, why it’s rising and what to do if your tenant is impacted.
What is rental stress?
Rental stress is often defined as households paying more than 30% of their income in rent.
But this can be misleading, as many high-income households pay rents above this level without encountering financial difficulty.
As the Australian Bureau of Statistics explains, rental stress is an indicator that generally relates to low-income households.
Generally, rental stress measures the proportion of households in the bottom 40% of earners paying more than 30% of their income in rent.
Why is it an issue?
As the Productivity Commission noted in a recent report, the rental property market is changing.
Once seen as a short-term proposition for young couples saving to buy a family home, renting has become a longer-term way of life for all ages and all types of households.
In particular, rising house prices are increasingly driving low-income households into the home rental market.
The report found the proportion of low-income households living in rented housing increased from 16% in 1994-95 to 27% in 2017-18.
More than one million low-income households are in private rental accommodation, more than double the figure two decades ago.
Two-thirds of these households – more than 600,000 in total – experience rental stress, while 170,000 households have less than $250 available each week after paying rent.
“More low-income households rent privately than ever before, in part because home ownership and public housing have become less attainable,” Commissioner Jonathan Coppel said.
“Increasingly, we see families stuck in rental stress.”
Anglicare’s 2019 Rental Affordability Snapshot found private rental properties in metropolitan areas were out of reach for most Australians living on welfare payments.
What’s the situation in Western Australia?
Analysis by the University of NSW for the Everybody’s Home campaign before the 2019 federal election found rental stress was highest in electorates in western Sydney, the NSW north coast and south-eastern Queensland.
There were no West Australian electorates featured in the top 20 nationally for rental stress.
But campaign spokesperson Kate Colvin said rental stress was also being felt acutely in traditionally affordable outer suburban areas, such as Perth’s south-east.
The research found 72,000 West Australian households were living in rental stress.
The five WA electorates with the highest rental stress were Burt, with 36% of all rent-paying households experiencing rental stress; the neighbouring seats of Canning (36%), Brand (35%) and Forrest (34%); and Cowan, in Perth’s mid-northern suburbs (34%).
What this means for property managers
It is more important than ever for landlords and property managers to understand the changing fundamentals of the rental property market.
This means appreciating that even a small increase in rent can potentially push a tenant into rental stress and making sure tenants have access to the resources they need, such as Commonwealth Rent Assistance.
As a specialist property manager focused on the Perth market, Rentwest’s experienced team has expert knowledge of the city’s rental property market.
We build strong relationships with our landlords and tenants to ensure positive outcomes for both sides of the rental equation.
And, as active members of theactive participants in the Real Estate Institute of Western Australia, we advocate for policy changes that maintain a healthy environment for buying, selling and renting property.
Our team would be happy to advise you on issues that may affect your investment property portfolio.