A new report has found that the private rental sector has grown by 36% over the past 10 years – twice the rate of household growth.
This growth is set to continue largely due to a decline in home ownership, particularly among younger and middle-aged Australians faced with rising house prices and a shrinking social housing sector.
Debt-based financing of properties has also increased significantly, with the report suggesting a regulation re-think.
The Future of the private rental sector report, the final report from the AHURI Inquiry undertaken by researchers from UNSW Sydney and Swinburne University of Technology, studies the evolving institutions, policies and practices of the private rental sector in Australia and nine other countries from 2006-2016.
More than a quarter of all Australian households – some 2.1 million households – are private renters. Australia also holds the highest level of household debt related to housing for both owner-occupied and rental housing of the 10 countries examined.
“The Australian private rental sector is unusual in that it displays a high degree of integration with the owner-occupied sector – that is, houses and flats transfer between the two sectors,” says researcher Dr Chris Martin from UNSW Built Environment.
“In most other countries, it is common for rental housing stock to be more differentiated.
“Australia’s integration of housing sectors heightens the prospect that, in the event of an economic shock like the GFC, investment in both sectors falls simultaneously with little established institutional capacity for countercyclical investment.”
The sector is also diversifying with the development of niche markets and services, and a growing ‘informal’ sector characterised by a lack of transparency and tenure protection.
“Our research found the Australian private rental sector is fragmenting into more specialised markets, particularly at the low-price end of the market,” says Dr Martin.
“Together with the older forms of marginal housing such as residential parks and rooming houses, we’re seeing newer markets such as the student housing sector, new generation boarding houses in NSW, developers retaining units for rent, an affordable rental sector provided by not-for-profit organisations, and a growing informal sector.”
While this fragmentation has led to a diversification of households on a broad range of incomes, low-income and vulnerable households face particular barriers accessing and maintaining housing in the private rental sector.
The evidence suggests that rental property investment and provision is skewed toward moderately to highly priced rentals with limited and insufficient dwellings accessible at the low-rent end.
Moderate and high-income renters have also been advantaged by the rapid uptake of digital technology in the sector ranging from large online property portals, rent bidding apps and social media that connects tenants directly with landlords.
The growing and changing nature of the private rental sector should prompt policy makers to review the effectiveness of existing policy and regulation.
By international comparison, the research reveals Australia has relatively weak laws regarding security and rent regulation. Even countries where, like Australia, the majority of landlords are smallholding private individuals (i.e. ‘mum and dad’ investors), the laws protecting tenants’ rights are much stronger.
In Germany, where tenant rights are some of the strongest, 65 per cent of private rental housing is provided by individual landlords.
“Strong assurance of security and other conditions makes renting an attractive option, and it seems German landlords think that makes good business sense,” says Dr Martin.
“Australian landlords and regulators should regard provision of rental housing here as a business where standards are important.”
The report also raises concerns about the regulation of the growing informal sector.
“Informal housing arrangements like room and short-stay rentals are growing and they are often under policy-makers’ radar unless there are health and safety issues,” says Dr Martin.
The research finds that without oversight, some landlords and intermediaries are acting in unscrupulous ways to increase rental returns, such as by overcrowding dwellings and converting living areas into sleeping space.
The report can be downloaded from the AHURI website here.