The word ‘crisis’ is arguably used far too often in the media. But there is no doubt the rental market has been beset by a perfect storm of issues that has led to scarcity and affordability issues not seen in Australia for almost a century.

It has seen renters at the lower end of the rental market squeezed out of affordable homes, leading to a surge in homelessness across Australia’s capital cities and regional towns. Even for the well-heeled, rental properties are thin on the ground and competition for them is fierce. Throw into the mix surging migration, rising interest rates, a slow pipeline of new housing supply and perhaps the word ‘crisis’ is not overblown – as anyone looking for a rental property will tell you.

So how did we get here? Let’s go back to a time that triggered a myriad of social, cultural, and economic changes both in Australia and globally - the pandemic.

How did the pandemic affect Australia’s rental market?

Social distancing

The COVID-19 pandemic, with its lockdowns and heightened health concerns, prompted many Australians to seek more space and to live with fewer people. An Australian Bureau of Statistics information paper titled ‘New insights into the rental market’, found the decline in the average household size during the pandemic contributed to around 120,000 additional households being formed – even as migration to Australia was halted. Some of this demand surfaced in the rental market.

The 2021 census, conducted at the height of the pandemic, showed around 30% of Australians rented their homes on the private rental market. At that time, data showed renters tended to have lower incomes and spend a larger share of their disposable income on housing costs compared with owner-occupier households (both outright owners and those with a mortgage). The median private renter spent around 26% of their weekly income on rent, ABS data found. By September 2023, renters were spending around 31% of their income on rent while for low-income earners, the proportion was up to 51%, according to CoreLogic property market research.

City exodus

The demand for more space saw some city-dwellers take that literally, leaving capital cities for regional areas. Widespread adoption of work from home across many workplaces, coupled with stringent lockdown conditions in Sydney and Melbourne, saw substantial internal migration to regional and coastal towns. The quarterly flow of people to regional areas was up 15% during 2020 and 2021 on the previous two years. Despite the closure of many state borders, Queensland’s Gold Coast was the most popular destination followed by the Sunshine Coast, Greater Geelong, Wollongong, and Lake Macquarie.

With many sea and tree changers renting before entering the buyers' market, regional rents in prime locations boomed while vacancy rates dropped. The imbalance in supply and demand saw rents in regional Australia jump almost 20% on a national basis during the two years of the pandemic.

The official end of pandemic restrictions saw an explosion of activity in Australia’s housing market. Property prices escalated both in capital city and regional markets. Rents skyrocketed along with them. CoreLogic figures show Australia’s median rent averaged annual growth of 9.1% for the three calendar years of 2021-2023, a rise of more than 27%.

Population explosion

Fuelling competition on the rental market, the end of the pandemic also opened the gates to Australia’s migration program. During the pandemic, Australia’s population fell for the first time in more than a century, highlighting the country’s reliance on migration to drive not only population but also economic growth. The end of international travel restrictions saw Australia’s migrant intake make up for lost time. Growth rates went from the slowest in 100 years to the fastest, with a net 518,000 migrants added to Australia’s population between 2022-23.

The largest proportion of those arrived in the country as temporary visa holders. This overwhelmingly placed them in the rental market rather than the buyers' market, further fuelling demand while driving rents higher and vacancy rates to almost negligible levels in some markets.

Interest rate rises

Another significant factor in driving Australia’s rental squeeze was the increase in interest rates. As the Reserve Bank of Australia began lifting the cash rate from May 2022 to combat rising inflation, some landlords saw the losses on their negatively geared rental properties widen to unsustainable levels. Between 2022 and 2023, interest rates rose 13 times from 0.1% to 4.35%.

Many landlords raised rents in an attempt to bridge the gap between increasing mortgage repayments on their investment properties and the rental income they were receiving to help service their loans. With many state and territory governments limiting rental increases and amid talk of rent freezes, some investment property owners chose to leave the market. In the three years after the 2021 census, data shows more than 470,000 residential properties were sold to existing homeowners or first homebuyers, not to other investors. This further squeezed rental market supply.

What do renters say?

The InfoChoice Rent Crisis survey was conducted in January 2024, seeking the views of 1,000 Australian renters across all age demographics. It found seven out of 10 were paying more than 30% of their gross income on rent, the official marker for rental stress. More than 41% of renters reported their rent had risen by at least 10% in the past year. Two-thirds of those surveyed said they had made lifestyle changes to afford their rent increases. The survey found 12% had moved to a smaller place, 6% had taken in a flatmate to share costs, while 1.2% reported moving back in with parents.

It’s notable more than three-quarters believed their landlords had been fair with their rent. The overwhelming majority of participants (96.2% of renters) agreed the government should do more to help renters through the crisis. More than a quarter said they believed more public housing would help improve rent affordability.

Is more public housing the answer to the rental crisis?

In recent years, there have been renewed calls for increased government investment in public housing to provide a larger safety net for lower-income earners that have been squeezed out of the private rental market. Traditionally, public housing in Australia has been provided by state governments. It should not be confused with community housing which is provided by the not-for-profit sector. However, much of the funding for community housing organisations is provided by governments and much of the housing stock they manage is, or was once, public housing.

As at July 2023, the two sectors combined provided 442,700 ‘social’ housing dwellings – two-thirds was government-owned public housing dwellings. That’s a marked decrease from the 84% provided by governments in 2006. During that time, the number of community housing dwellings has more than tripled, mainly due to the transfer of ownership or management of public housing to community housing organisations.

Why are governments getting out of public housing?

Post World War Two heralded the glory days of public housing in Australia. State and territory governments, funded by cheap Commonwealth government loans, constructed more than 96,000 dwellings in a decade, prioritising the housing of returned servicemen and large, low-income families on subsidised rental schemes. In 1956, the Menzies government diverted money away from public housing and rental assistance, preferring to encourage home ownership. This saw states selling off much of their public housing on the private market over ensuing decades.

Although governments have continued to build and maintain public housing, the appetite to do so has significantly diminished. In the 1980s, as many as one in 10 homes approved for construction were owned by governments as public housing. That’s fallen to less than 2% of annual approvals. Subsequent governments from both sides of politics have stepped back from the direct provision of public housing, incentivising the private residential investor market to take up the slack. The stock of social or public housing in Australia is currently around 3.8% of all dwellings. That compares to around 17% in England and 29% in the Netherlands.

In 2023, around 175,000 Australian households were on the public housing waiting list. Of these, 68,000 were deemed in “greatest need”. The rental crisis has also coincided with unprecedented demand on homelessness services around Australia. In 2023, the Albanese government announced its Housing Australia Future Fund to build 20,000 new social housing dwellings and 10,000 new affordable homes for frontline workers. Housing market analysts say it will make a very modest start in redressing Australia’s social and affordable housing shortage.

What’s ahead for the rental market?

Could it be too soon to suggest the worst for renters may be over? Reserve Bank of Australia data shows Australia is once again starting to see an uptick in the number of people per household. This is in line with the latest analytics from sharehousing platform flatmates.com that found demand for sharehouses had rebounded to record highs in January 2024. As well, migration numbers in 2024 are expected to drop from their record level the previous year.

The annual growth rate in rents had already slowed by the end of 2023 and is expected to ease further, in step with the widely forecast fall in interest rates in the second half of 2024. Historical data shows rent values and interest rates move together over time. CoreLogic’s head of residential research Eliza Owen said any easing in interest rates could also increase demand from housing investors, which could add to rental supply. Falling interest rates could also lure first homebuyers to transition from the rental market to home ownership, further easing rental demand. But these are longer-term prospects.

How can it be fixed?

Prominent property market researcher Louis Christopher, managing director of SMQ Research, is less optimistic the crisis is resolving itself. Speaking on The Savings Tip Jar podcast on 27 February, he said there was still no sign in the data of migration easing, rents dropping, or more homes being supplied. He did, however, pose a solution using “straight-out economics”. Mr Christopher advocates a multipronged approach requiring government action to:

  • bring down migration

  • increase new housing supply

  • change the taxation regime

Mr Christopher said the tax changes must involve negative gearing, stamp duty, and a land tax to encourage development of unimproved vacant land. He said negative gearing needs to be adjusted so investors receive better rental yields in line with those of overseas markets. Stamp duty too needs to be revamped, he said, so people were not discouraged from moving to homes more suited to their lifestyles. Public housing also has a role to play but was not the solution on its own, he said.

Finally, it’s worth noting Mr Christopher said the term ‘rental crisis’ is “absolutely” not overblown. The media can get it right sometimes.

Image by Mike Cox on Unsplash



Ready, Set, Buy!


Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!

With bonus Q&A sheet and Crossword!

Download Free
By subscribing you agree to our privacy policy