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Where do record rental prices leave low-income earners?

Governments need not only to create affordable housing, but to keep it affordable in the long run. AAP/Tracey Nearmy

Where do record rental prices leave low-income earners?

Average house rents in metropolitan Melbourne have increased by 5.3%, with apartment rents growing by 2.8%, over the last three months. A lack of affordable rental properties is a problem in Sydney too. This has fuelled speculation of a housing bubble, particularly in the wake of falling investor demand for new high-priced CBD apartments in these capital cities and others.

But beyond the headlines lies a difficult policy task for all three levels of government, in conjunction with the private sector and civil society. They need not only to create more affordable housing, but to keep it affordable in the long run.

Recent discussions with private developers and investors suggest there is growing willingness to collectively tackle the problem. However, some common misapprehensions remain about who needs affordable housing and how those needs might be met.

Looking beyond the stereotypes

There continues to be two quite different stereotypes about the people who need affordable housing:

  • First, there is the older single man with mental health and/or addiction issues, who may need therapeutic assistance and housing.

  • Second, there is the “key worker” individual or couple – young, working in education, medicine or emergency services – who just simply need “more supply”.

The reality is that there are many different kinds of households requiring affordable housing. Many different mechanisms will need to come into play to meet their needs.

Penny the pensioner is living in poverty, like one in three older women. She spent many years bringing up two children full-time and did not accumulate retirement savings or assets. As a very-low-income person, she receives Commonwealth Rent Assistance. However, she is among the 35,000 Victorians on the waiting list for public housing.

Penny can no longer afford to live in or near Port Melbourne, her home for her entire life. This is because there are simply no rental apartments available there for A$165 per week, which is what she could afford.

Penny wonders if Australia’s largest urban redevelopment project next to Port Melbourne, Fishermans Bend, could have an apartment for her sometime soon. But with no new Commonwealth affordable housing program in place, no inclusionary zoning or financial incentives at the state level, and rate capping at the local government level reducing capacity to invest in affordable housing, at most 1.3% of the total 40,000 projected housing units will be available to middle-income households – let alone low-income people like her.

Even if new units were developed in Fishermans Bend, a 50m² apartment would cost about $300,000 to build, given land, construction and financing costs. Rates, water, maintenance and management would cost about $9,000 a year per unit to deliver.

These costs could not be recovered fully through Penny’s rent, even if construction was completely subsidised. There would need to be a combination of lower-cost land, subsidised construction, guaranteed finance, rate relief and ongoing subsidy to make her living unit viable for the private sector to deliver and a community housing provider to own and manage.

Naresh is a nurse. He would be classified as a moderate-income earner. He lives with his wife Nadira. They recently had a child; Nadira is a full-time parent.

Because he is a shift worker, Naresh’s public transport options are not reliable. He would prefer to live within walking or cycling distance of his workplace, even in a smaller unit, as he does not own a car.

Naresh can afford to pay 30% of his $60,000 annual gross income on rent, which works out to $340 per week. This is still below the average rent in Melbourne for a 70m² two-bedroom unit.

A few two-bedroom apartments are available for that price – about an hour’s public transport ride away from his job. However, he works in a well-serviced but conservative inner suburb, where new apartments aren’t being constructed and existing flats are rented by much-higher-income households.

Naresh would have to add the cost of buying and maintaining a car to his rental cost and a long commute to an already difficult work-life balance. This is hardly affordable or family-friendly living.

Even if new apartments were being constructed where they are most needed, it would cost at least $400,000 to build and require about 50% construction subsidy for a community housing provider to be able to rent to Naresh and Nadira. The alternative would be short-term renting in the private market with the likelihood of having to relocate every year or two.

Signs of progress

Across Australia, there was a shortage of 122,000 affordable and available dwellings nationwide in 2011. This was a 40% increase from 87,000 in 2006. The problem has worsened since the last census in 2011.

There are some signs of progress across Australia. After a cross-party Senate inquiry into affordable housing in 2015, the Affordable Housing Working Group is looking at “innovative financial models” to scale up production.

Several states are taking concrete actions. Western Australia was the first cab off the rank and had attained its ten-year targets by 2015. New South Wales has established the Social and Affordable Housing Fund. Queensland’s Affordable Housing Strategy is at the discussion stage.

In Victoria, the previous Coalition government’s strategic plan for metropolitan Melbourne is being “refreshed”, including a greater emphasis on housing need. In advance of a promised affordable housing strategy, the current Labor government recently announced a $150 million “housing blitz” for women and child survivors of family violence.

Several local governments in Melbourne have also led the way in donating land to affordable housing, particularly the City of Port Phillip.

The trick is going to be combining various actions by Commonwealth, state and local government to support private developers and community housing providers in not only developing new housing, but keeping it affordable for hundreds of thousands of Australians.


The co-author of this article is Brad Hosking, the corporate director of Common Equity Housing Limited.