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Opinion article

What COVID-19 has revealed about our rental housing market

CEDA Senior Economist, Gabriela D'Souza, discusses the effect that COVID-19 has had on Australia's rental market and the pre-existing issues the crisis has highlighted.

Australia’s housing market much like other parts of the economy has been affected by the virus and its effects are only just starting to be felt. However for some groups of people, like renters, particularly those living in group households, these effects are hitting harder and cutting deeper than for others. The economic downturn has exacerbated inequities in Australia’s rental market that need serious attention.

Housing trends before the pandemic

Housing markets are the manifestations of living choices made by groups and individuals about how they decide to organise their lives. Some of these decisions are determined by culture, others determined by monetary and tax arrangements. Housing markets around the world differ in key ways, but some trends can be seen globally. For example, nuclear families have been falling across the globe, and group households have been rising, particularly in metropolitan areas where people, particularly young people, try to save costs by sharing spaces with friends.
The Australian housing market exemplifies this last characteristic in particular. In 2018-19, the proportion of share houses was around 18.6 per cent. Lone person households comprised a further 18.8 percent of all households.
In part the dominance of the group share house could reflect how out of reach owning a home has become for many young people. Median house prices in capital cities like Melbourne and Sydney are approximately six times the median wage in those cities – in 1985 this was close to three times. Unsurprisingly, the number of homeowners aged 25-34 has nosedived from 60 per cent in 1961 to 45 per cent in 2016.

HomeOwnership-01.jpg

Source: Hall, A and Thomas M 2019 Declining home ownership rates in Australia available https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook46p/HomeOwnership


The effects of the pandemic

The pandemic has had a particularly disproportionate effect on young people – the group least likely to own their own homes.

A larger proportion of young people tend to be in insecure employment particularly within the 20-24 age group. One point five million of those aged 15-34 are in jobs where they are not entitled to paid leave.



Sharehouses are the norm for those in casual employment; students, including international students; those on low incomes; and temporary migrants including working holiday makers and other temporary workers. An estimated 270,000 working holiday makers are currently living in Australia, a further approximately 565,000 international students and 200,000 temporary skilled and other workers and the majority of these migrants are found in or around the capital cities.

These are the groups of people who have been hardest hit by the economic effects of the virus, with cafes, bars and restaurants being ordered to shut down and operate takeaway only businesses. As such, the effects of the COVID-19 downturn seem particularly pronounced in sharehouse rentals.



Fairy Floss Real Estate – a popular Facebook page that posts lease tenancy transfers and breaks – has been inundated with posts from people who are seeking housemates because their own have been either stood down, or have returned to their home countries.

This movement of students and other migrants out of the market has resulted in an increase in the supply of properties. The downturn in tourism spending, because of the downturn in both international and domestic travel has seen many hotels and Airbnb’s become vacant.

In March 2020, there were an estimated 12,000 full apartments available on Airbnb for short-term stays. It is likely that some proportion of these have already made their way into onto the long-term rental market as owners come to grips with the scale of the downturn. However, the effects of this supply is still unknown. Standard economic theory should suggest that the vast increase in supply would lead to a reduction in rents, but that is not always the case as landlord try to preserve their rental yields.[i]

This means that while employment is declining for young people, their rent may well remain the same. While many young people will be able to move back in with their parents, many do not have that option, particularly temporary migrants or international students still in Australia.

The situation now

The uncertainty in the rental market has already hit many people hard.

Some landlords have even resorted to serving eviction notices for tenants who have been unable to make rent because they have lost their jobs or have been stood down. In other cases, rental agencies have rather egregiously been advising tenants to avail of the government's early super withdrawal scheme to make rental payments. This move has seen ASIC send out correspondence to agents warning them about offering financial advice without holding the necessary legal qualifications.

The Australian Banking Association announced provisions for mortgage pause for in-need groups, but it is unclear what support is being made available for tenants who are being evicted because they cannot pay rent or due to other reasons. Almost two weeks ago (which feels like a lifetime in the current crisis) the Federal Government announced a moratorium on evictions but left it to the states to design. As yet, we have seen few details about how landlords, tenants and rental agents should be navigating the situation. Recently announced support packages from the Victorian and New South Wales governments are an encouraging first step.

Conclusion

Renters comprise some of the most vulnerable among us, including underemployed young people and temporary migrants. The lack of clear support for renters on the ground during this crisis to date reflects the biases of a system that preferences landlords first. When Australia comes out of this crisis, let us hope we won’t forget what this has taught us about our very own “house of cards” for renters.
 
About the authors
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Gabriela D'Souza

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Gabriela D’Souza joined CEDA as Senior Economist in 2018 with eight years of experience in public policy. She has worked at some of Australia's most well-known and respected public policy think tanks and economics research centres. She has conducted research on a wide range of public policy issues including education, immigration, multidimensional disadvantage, and area-based measures of exclusion. Gabriela has a master’s degree in economics from Monash University and is an affiliate of Monash University’s Department of Business Statistics and Econometrics.
 

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