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What explains the rise of long-term private renting in Australia?

Posted by on April 27th, 2017 · Affordability, Housing, Tenancy

By Hal Pawson, City Futures Research Centre.

The ongoing expansion of Australia’s private rental market is well-known. Even at the time of the 2011 census, more than one in four properties was a home rented from a private landlord either directly or through an agent. But for increasing numbers of people this is a long-term or even lifelong situation. We estimate that as many as one household in ten is now a long-term (private) renter (LTR) – living in a landlord-owned home (or a succession of such homes) for at least 10 years.

As shown by our newly published research, a number of factors underlie this rising trend. Our fieldwork, covering six suburbs in Sydney and Melbourne’s inner, middle and outer suburbs, reveals that there’s a contingent of private renters in the more expensive districts of our major cities who have actively chosen to trade-off the supposed attractions of owner occupation so as to give them easy access to ‘urban amenities’. That is, a lifestyle choice that prioritises proximity to jobs, transport, arts, culture and entertainment even at the expense of remaining outside the owner occupier mainstream. These are people choosing to rent in areas in which home ownership would be beyond their means.

‘…for my head space I want to live where I want to live not where I can afford [to buy], so that’s the big driver’. [Sydney LTR, high rent area]

Long-term renters in this bracket and interviewed in our research explained their thinking with statements such as:

‘I just don’t do the suburbs.  I’ve lived in Melbourne for like 23 years and I’ve never gone out, you know, [past] sort of Richmond, Toorak, South Yarra, North Melbourne … I’m not prepared to live any further out of the city than that’. [Melbourne LTR, high rent area]

 ‘…that [moving far enough from the city centre to afford home ownership] is an untenable situation for us … Holy crap, we’d be commuting for like two hours a day’. [Melbourne LTR high rent area)]

This life-style choice is perhaps quite surprising given that Australia’s weak tenancy laws means little legal security and facing the prospect of having to move. And also the fact that (except for the minority who are ‘rentvestors’[i]) tenant status means exclusion from the tax system benefits of home ownership.

A second group is the families who choose to continue renting in expensive areas (where they couldn’t afford to buy) so that their children can attend favoured local schools.

‘… we need to stay in the area for our son and we balanced that against sending him to a private school so in that way it’s cheaper to live here even though the rent’s reasonably expensive … We can afford to rent here but we can’t afford to buy here, so that’s the pay off …’ [Sydney LTR, high rent area]

Long-term (or lifelong) low income private renters in outer suburbs have a very different perspective. For most of these tenants, their housing situation was purely a result of constraint – permanent exclusion from homeownership – not choice. While the prospect of living out retirement in this housing situation will be unenviable for anyone dependent on the age pension, one of the most commonly stated regrets for this group is the inability to hand on a housing asset to their children.

Interviewer:  ‘So do you feel that you’re locked out of the housing market now?’ Respondent:  ‘Yeah, definitely.  Like we had friends that are the same age as us…They were renting. They moved back home with their mum and dad for two years to save money. They ended up saving I think $30,000 …  So they moved out and they still couldn’t afford to buy a home. Like with $30,000…they still couldn’t afford to do it so you just think …[Sydney LTR, low rent area]

None of the low rent area interviewees could be said to be renting ‘by choice’, in terms of deliberately opting to rent despite having the financial means to buy. For many, a lifetime of rental insecurity looked certain.

More broadly, even for renters earning enough to cover mortgage repayments, the escalating years of deposit-saving required for a typical income earner to access a homeloan makes an increasingly lengthy stay in private rental unavoidable for any aspirant purchaser lacking access to ‘the bank of mum and dad’. This rising ‘deposit hurdle’ is one of the factors inexorably expanding Australia’s LTR population.

Our findings are consistent with those of previous studies which show that insecurity is seen as more problematic by low income tenants for whom a landlord-instigated move or rent increase poses the greatest risk. For many higher income tenants it is of relatively little concern – either it is assumed that the landlord intends to retain the property for the foreseeable future, or there is a confidence that – thanks to material and social resources, finding an alternative tenancy would be unproblematic if required due to a ‘forced move’.

Policy-wise, our findings lend support to the familiar contention that expanded provision of (more) secure rental housing for low income groups would be highly desirable. This could include more government-funded ‘social housing’ and changes to regulation of the private rental sector to enable more secure tenancies over the longer term.

Another option is to restructure market rental provision through tax concessions and other measures favouring institutional investors rather than the small-scale amateur landlords who currently dominate provision in most high-income countries just as in Australia. A key argument for this strategy is the likelihood that insurance companies, pension funds and the like would preference long-term rental returns over short-term capital gains and would therefore prioritise long-term tenancies. Indeed, the British Property Federation which represents such interests in the UK has only recently issued a policy statement backing 3-year tenancies (binding on the landlord but not the tenant). In order to make resulting tenancies affordable to low income tenants, however, substantive government support would of course be necessary. A cash-backed recognition of this reality is something we would hope to be revealed in next month’s Federal budget. But we are not placing bets.



Hal Pawson, Kath Hulse and Alan Morris; Interpreting the rise of long-term private renting in a liberal welfare regime context; Housing Studies; Online first publication

[i] ‘Rentvestor’ is a term coined by L J Hooker to apply to under 30s who rent their current housing whilst buying an investment property.

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