Since the pandemic, housing affordability has been a deafening talking point in political, economic and social circles. Homes, until relatively recently, have experienced strong price growth in most markets.
Rents have also maintained strong growth, though less than home prices. That has created a situation that we no doubt hear all of the time in property coverage: housing affordability has gotten worse. But how much worse?
Perth has seen rental price growth far-eclipse wages growth experienced since 2020. Picture: realestate.com.au/sold
When you consider rental growth, most economists would analyse it as real rent growth if rents have increased faster than inflation - and for the most part, they have.
To understand if that is bad for households, we need to look at how wages have grown relative to rents.
It is important to consider rental growth this way because housing, and specifically rents, are essential dwelling services that all people require in some form.
Ideally, in a household budget, essential services continue to account for a declining share of household income. That way, more is spent on discretionary goods and services rather than on non-discretionary ones.
This doesn’t mean rental prices don’t rise - it’s better that they do in some form, but that they grow more slowly than wages.
That is where the disjointed market currently sits: wages have increased, but not by enough, and rents have increased by a little too much because of a shortage of well-located supply.
The magnitude of the difference between these matters, but it varies a lot depending on where you live.
How have wages performed relative to rents?
In all of Australia’s capital cities, rents have outgrown wages.
Perth has had the largest increase in rents relative to wages, with rents increasing by 80 percentage points more than wages. That increase has placed significant pressure on household budgets, as wages have not kept pace. The proportion of household budgets allocated to rents in Perth has increased since the start of the 2020s.
On the other hand, Canberra has had the most balanced rental growth relative to wages, with only a small 3.1 percentage-point difference since January 2020 until the end of March. This means that rents relative to wages in the nation’s capital have stayed quite consistent.
The ACT's wages are mostly public sector-driven, but rental growth has remained modest compared with the rest of the country.
Canberra has been the most balanced capital city for rents, with price growth outpacing wages growth only modestly. Photo: Getty
Melbourne remains the most interesting housing market over that period, as migration trends shifted and affected demand for dwellings, while Victoria maintained slower wages growth than other big states. Keeping the city among the more affordable in the nation.
Sydney has stayed in the middle of the pack of the capitals, though coming from a higher base prior to this decade.
Brisbane, Adelaide and Darwin all experienced similar growth differences between rents and wages, with rents rising by over 40 percentage points over the period. This generally tracks with these midsized capitals' price growth more broadly.
This growth has meant that rental affordability has continued to worsen nationally, with no clear end in sight.
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