Six Solutions That Could Ease Australia’s Rental Challenges

Implementing diverse and comprehensive strategies aimed at increasing housing supply is crucial to addressing Australia’s rental crisis, according to a new report released by the LJ Hooker Group.  

The iconic real estate brand has released a detailed analysis of current conditions in their report titled ‘What is Happening in the Rental Markets’ which also outlines six possible solutions to the challenges being faced. 

LJ Hooker Group’s Head of Research Mathew Tiller said new thinking is needed with the rental market currently impacted by an unhealthy imbalance between demand and supply post-pandemic. 

“Understanding the dynamics that drive the rental housing market is essential in developing effective policies, regulations, and solutions to provide accessible and affordable options for all Australians. The number of rental homes in Australia increased from 2.2 million in 2011 to 2.8 million in 2021 – that’s 24 per cent growth in ten years.

“This shift can be attributed to changing economic conditions, demographic shifts, population changes and housing affordability,” Mr Tiller said. 

“Renting is no longer predominantly associated with young individuals and couples alone. ABS data reveals a more diverse renter profile, encompassing families and older Australians, as housing affordability challenges have made renting a more viable and attractive option for a broader range of individuals and households.”

Since the beginning of 2020, rental demand in Australia has experienced significant fluctuations, influenced primarily by two factors: overseas migration and changing household dynamics. 

To address rental market challenges, solutions should focus on housing supply including maximising the utilisation of existing homes and constructing quality built new ones of the right size in targeted areas. 

“Unfortunately, the outlook for new housing is not positive with the number of new dwellings being approved continuing to decline,” Mr Tiller said.

“High construction costs, a shortage of skilled tradespeople and increased financing costs have put pressure on developers’ and builders’, leading to a slowdown in construction times and a number of high-profile insolvencies.”

The LJ Hooker Group has devised six strategies for increasing much-needed supply, these include:

1. Governments can directly fund or build homes, acting as developers or financing private developers to build new homes. This would ensure a constant and consistent supply of homes being built, particularly in softer periods of the market cycle where the construction and selling of new homes are not financially viable for private developers.
2. Increasing the supply of social, community and affordable housing is required particularly in the less affordable inner-city areas and rapidly growing regional markets.
3. Planning and development incentives should align new housing supply with population growth, prioritising locations with tight labour markets and low rental vacancies.
4. Incentivising long-term leases to provide security and stability for tenants. Landlords could be encouraged to offer multi-year leases, similar to commercial properties, spanning three, five, seven or 10 years. Special clauses, such as a make-good clause, could be added allowing tenants to change the interior as long as the property was returned to its original condition on the expiry of the lease.
5. Increase build-to-rent incentives for large-scale builders and institutions to construct rental accommodations specifically to rent.
6. Balancing short-term accommodation with the need for permanent long-term housing in regional ‘tourism’ centres.
   
   

The LJ Hooker Group believes to ensure a sustainable and equitable rental market, it is crucial to adopt a comprehensive approach that addresses the underlying factors of rental market challenges. 

Solutions such as rental freezes and rental caps, which have been discussed as solutions, would provide shorter-term relief for tenants but come with longer-term negative consequences that need to be considered. 

Such options would disincentivise landlords from offering long-term leases or renewing existing ones, reducing the security of tenure that many tenants seek. 

“Both these options also discourage landlords from investing in property maintenance and improvements, potentially leading to declining rental property quality over time,” Mr Tiller said.

For more information or to read the full report, click here.