Housing affordability has been a hot topic in Australia in recent years. But whilst much attention is paid to mortgage stress and barriers to reaching the Australian dream of owning one’s own home, housing stress[1] rates highlight rental stress is significantly more prevalent than mortgage stress in Australia. Sydney, Australia’s largest city, is no exception to this rule.

Within Metropolitan Sydney, approximately 9.7% of households with a mortgage were in mortgage stress and almost a quarter of renting households were in rental stress in 2016. Mortgage stress rates in Metropolitan Sydney actually eased between 2011 and 2016. Several factors have played a role in reducing the prevalence of mortgage stress in Sydney. Mortgage interest rates decreased over the period, reducing the cost of mortgage repayments for households. Wages growth increased strongly throughout this period, further improving households’ capacity to pay. In addition to the key metrics contributing to stress rates (mortgage repayments and incomes), house prices are likely to have influenced housing stress rates.

House prices skyrocketed by over 50%[2] over the five-year period across Sydney, presenting a significant barrier to entry for potential buyers, particularly those with low incomes who are most at risk of mortgage stress. These high prices may have also provided an incentive for those experiencing mortgage stress to sell and enter the rental market. Renting has become increasingly popular in Metropolitan Sydney. Between 2011 and 2016, the proportion of households in Metropolitan Sydney ‘owning their home outright’ and ‘owning their home with a mortgage’ each decreased by 1.4 percentage points, whilst the proportion of households who were renting increased by 2.4 percentage points, to be the most common tenure type in 2016 (overtaking ‘owned with a mortgage’ from 2011).

Whilst mortgage stress rates have eased in Metropolitan Sydney, rental stress rates have remained high (increasing in numbers and remaining relatively stable as a proportion) and some sub-regional districts recorded noticeable increases between 2011 and 2016. Areas in Western Sydney[3] and South Sydney[4] recorded the highest levels of rental stress within the city, both recording around a third of households in rental stress.

Households experiencing rental stress face considerable challenges. Though rental stress can be a short-lived experience for many households (who tend to exit by securing higher paid employment[5]), once entrenched in rental stress there are few avenues for mitigating the situation (unlike mortgage stress). Nationally, almost half (47%) of low-income households had just $500 per week in available income after paying their rent to cover all other expenses[6]. Low remaining levels of income preclude saving towards a house deposit and exiting the rental market. Competition for social housing is also high and, as a consequence, allocated based on urgency. As a result, entrenched rental stress is increasingly problematic in Australia, with approximately half of rental stressed households in 2013 still in rental stress four years later (compared to less than a third of rental stress households in 2001).

Addressing access to low cost housing is necessary to improve outcomes for rent stressed households. Intervening in the housing market is beyond the remit of local governments. However, specific considerations for low cost housing in town planning schemes and incentivising low cost housing developments should be considered by Councils with high rates of rental stress.

For more information on how AEC can assist your Council in addressing housing stress, please contact AEC’s property team on (02) 9283 8400.

Housing Stress Rates, Metropolitan Sydney Districts, 2016