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Rental payments ‘wiping out’ incomes as costs keep rising
By John Collett
More renters are under financial stress as the double-digit annual rent increases of the last couple of years leave them with less money to keep up with the cost of living.
“Rental payments are wiping out Aussie incomes, as it gets harder and harder to cover rising costs,” says Rachel Wastell, a spokesperson for comparison service Mozo.
Rents consume a large part of workers’ incomes, but there are signs the worst has passed.Credit: Bloomberg
Inflation remains persistently high. For the 12 months to May 31 it was four per cent, making it even harder for renters to make ends meet.
“Renters may not have been hit with 13 rate rises like mortgage holders have in the past two years, but the number of renters under [financial] stress has increased dramatically, along with the percentage of income spent on rent,” she says.
Nearly 50 per cent of renters told a survey conducted on behalf of Mozo that they spend around a third of their income on rent, up from 37 per cent of renters two years ago.
A further 11 per cent of the respondents said they spend more than 60 per cent of their income on rent, a survey result up from five per cent two years ago.
The fundamental driver of higher rents, too much demand for the available supply, leaves landlords with the upper hand, with vacancy rates in Sydney and Melbourne well under two per cent. A vacancy rate between two and three per cent is considered a rental market in equilibrium.
Figures from Domain show the average Sydney house rent was $750 a week, and $720 for units in the June quarter of this year. In Melbourne, it was $580 for houses and $550 for units.
The good news for renters is that there are tentative signs that asking rents in Sydney have started to fall during the three months to July 12. The figures from SQM Research also show Melbourne rents still rising, though at a slower rate.
Even accounting for a slowdown in the rental market during winter, which normally takes pressure off rents, the days of annual rental growth of 10 per cent or more are over, says Louis Christopher, the founder of SQM Research.
“Annual increases of 10 to 12 per cent appear to be coming to an end, and the rental market is expected to slowly start returning to normal,” he says.
“I am not expecting major falls in rents in either city, as there is still a shortage of rental properties, but a lot of the heat in the rental market has now ended, as many renters cannot afford to pay more.”
The likely passing of the peak in net immigration, more people sharing rental properties or staying at home rather than moving out, as well as more renters becoming homeowners, are also taking pressure off rents, Christopher says.
Property experts say the initiatives by the federal and state governments to increase supply, including those reserved for the rental market, will take time and, even then, will likely not be enough to meet demand.
In the short term, a slightly softening rental market should help strengthen the position of renters. Mozo’s Wastell says before negotiating your lease terms, it is essential to research the market to understand where your rent stands compared to the average.
“Also, identify lease clauses that could justify a rent decrease, such as needed repairs, and familiarise yourself with tenant unions to know your rental rights,” she says.
Look for savings that can be made, whether it is streaming services, shopping around for cheaper petrol, or negotiating a better deal on your car insurance, as small savings can add up, Wastell says.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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