09 Dec Rental affordability is improving as mortgage stress rises
DON’T be too hard on yourself if you haven’t quite saved enough for that home deposit.
Renting might be the better option after new research from Adelaide Bank and the Real Estate Institute of Australia (REIA) revealed that renting is a whole lot cheaper right now.
According to the report, the proportion of the median family income required to meet median rents decreased by 0.6 per cent over the September 2016 quarter. Just under a quarter (24.2 per cent) of income is now needed to meet rental payments.
Further, rental affordability improved in all states and territories, with the exception of South Australia.
New South Wales, unsurprisingly, remained the least affordable state to rent but rental affordability did improve by 0.8 per cent over the quarter. Just over 28 per cent of median household income is required to meet median rents in the state.
The cheapest state to rent is the ACT, where just 17.3 per cent of income is needed. This is down from 17.8 per cent at the end of June.
Tasmania recorded the largest improvement in rental affordability over the September quarter, with the median income required to pay rent dropping 1 per cent to 24 per cent.
In South Australia, the only state to record a decrease in affordability, the proportion of income needed increased by 0.4 per cent, to 22.4 per cent.
MORTGAGE STRESS IS RISING
At the same time as rental affordability is improving, mortgage stress is rising. The research showed a decline in housing affordability nationally with the proportion of median family income required to meet average loan repayments increasing by 0.1 per cent. Almost one third (29.5 per cent) of the median national income is now spent on servicing a mortgage.
Northern Territory recorded the biggest improvement in mortgage affordability, where the proportion of income required dropped 1.3 per cent to 19.6 per cent. However, the ACT still remains the most affordable state where 19.1 per cent of income is spent on repayments.
New South Wales is by the far the most expensive again, where more than a third (35.5 per cent) of income is spent on repaying a home loan. This was 4.6 per cent more than the second most expensive state to own a home, Victoria.
REIA President, Neville Sanders, said increasing rental affordability and decreasing housing affordability is a result of the heated investment market.
“Over the last three years or so the proportion of investors purchasing houses has increased to the extent that investors have exceeded owner occupiers in the market,” Mr Sanders told news.com.au.
“At the same time developers have responded to the increased demand by building more apartments. This has resulted in occupancy rates falling and with it rents.
“The CPI figures provide further evidence that the current taxation arrangements which provide many Australians with the opportunity to invest in property adds to the housing supply and keep rents lower than they would otherwise be.”
The annual increase in rents to September has been the lowest on record since December 1994.
But declining rents could be a double-edged sword for first home buyers. On the one hand, it makes it easier for them to keep saving for a home deposit while they rent, but on the other hand, with many first home buyers ‘rentvesting’ their way into the market, declining rents will hurt rental yields on their investment property.