The housing crisis has spread to the regions - Grattan Institute

For a long time, Australia’s housing affordability crisis was mostly seen as a problem for city dwellers. But since the start of the COVID-19 pandemic, regional renters have also been feeling the pain.

Across regional Australia, vacancy rates are at record lows and asking rents have surged 12.5 per cent over the past year. Shocking stories abound of people in regional areas, including many who have jobs, sleeping in caravans, tents or even their cars because they can’t find a home they can afford to rent.

COVID-19 lockdowns and the work-from-home revolution drove an exodus from the cities to the regions. Last year was the first in four decades where Australia’s population grew more in the regions than in the capital cities. Many regional housing markets just couldn’t keep up.

And now that borders have reopened, population growth, and with it housing demand, is expected to rise sharply. The federal Treasury expects Australia’s migrant population to boom by 470,000 people in the next two years. Many regional renters’ lives are about to get harder still. There is no quick fix to this crisis. But with state elections looming in Victoria and NSW, state governments should take steps to help vulnerable Australians keep a roof over their heads.

The fundamental problem is not enough houses, so the obvious solution is to build more. But building more homes isn’t going to help much in the short term. Australia adds at most 2 per cent to its housing stock each year. Building a house at the best of times can take up to eight months. With COVID19-induced global supply chain delays, this has blown out to more than a year. That’s too long to wait for Australians struggling to pay the rent.

The immediate focus of governments must be on giving low-income renters the money they need to make ends meet. The federal government should raise immediately Commonwealth Rent Assistance, a payment received by people on income support and who live in a private rental property.

Rent Assistance works: in 2021, it reduced housing stress levels for recipients nationwide from 72 per cent to 46 per cent. But the maximum rate of Rent Assistance hasn’t kept pace with the rising rents paid by low-income renters. The Productivity Commission’s recent review of housing assistance argued reviewing Rent Assistance was the number one priority to help low-income renters.

To help regional renters, the state governments in Victoria and NSW should work with the federal government to co-fund a trail of a higher rate of rent assistance across regional areas in both states. A well-designed regional trial would demonstrate that raising rent assistance wouldn’t increase rents by much, especially because little of the extra income will be spent on housing. And it would show the benefits to low-income renters in terms of reduced financial stress and improved nutrition and mental health.

But with so many families struggling to simply find a home, let alone afford one, we also need to free up extra housing stock for long-term rentals.

To do this, the Victorian and NSW governments should expand the use of “head-leasing” – leasing private rentals and sub-letting them to vulnerable people. They should also buy homes and turn them into social housing.

And the state governments should explore ways to encourage owners of short-stay rentals advertised on platforms such as Airbnb to return those properties to the long-term rental market, such as by lifting the rate of land tax that applies to short-stay accommodation. That would come with a cost because fewer Airbnbs would mean less regional tourism, and therefore fewer regional jobs. But it would be better than seeing families in regional Australia living in caravan parks, tents and cars.

But in the long term, the only way to keep rents in check is to build more housing. The federal government’s plan to sign a Housing Accord with the states to boost housing supply – announced in the October 2022 federal Budget – could be a game changer. If an extra 50,000 homes were built each year for the next decade, rents could be 10-20 per cent lower than they would be otherwise.

But that will only happen if the Albanese government puts enough money on the table to push state and territory governments to ease land-use planning rules, to enable more housing, including more high-density housing, to be built.

Australia’s housing affordability crisis has well and truly spread from the suburbs to the regions. We should demand that our governments step up and fix it.

Joey Moloney

Economic Policy Deputy Program Director
Joey Moloney the Deputy Program Director of Grattan Institute’s Economic Policy program. He has worked at the Productivity Commission and the Commonwealth Treasury, with a focus on the superannuation system and retirement income policy.

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