Inquiry into Liveability Options in Outer Suburban Melbourne · 2012. 12. 12. · properties which...

Submission to

Inquiry into Liveability Options in

Outer Suburban Melbourne

May 2011

Tenants Union of Victoria Ltd

ACN 081 348 227

55 Johnston Street

Fitzroy 3065

Admin 9411 1444

Prepared by

Toby Archer

Tenants Union of Victoria © 2004 Cover Illustration by Damian Fitzgerald © 2002

Design by Watson Design

Inquiry into Liveability Options in Outer Suburban Melbourne

3 tenants union of victoria

Introduction

Private rental housing is a key component of the urban housing system. While inner suburban areas tend to have a greater proportion of housing stock in private rental, the private rental market plays an important, though largely underestimated role in the life of outer suburban areas.

This submission provides an analysis of private rental market affordability in outer suburban Melbourne.

The private rental market context

The Australian housing system has historically been based on majority home ownership, long term public rental housing for low income households and transitional private rental. However, private rental is no longer a transitory tenure, becoming the forced choice for a growing number of low to moderate income households.

A number of drivers are at play. Aggregate housing demand has grown due to both economic and demographic factors. Real house prices have increased relative to income. The mismatch between household formation, incomes and prices is particularly evident in home ownership rates of younger households, which have declined significantly over a generation. Home ownership fell from 65 per cent in 1981 to 57 per cent in 2006 for people aged 25 to 39, with the 25 to 34 age group falling from 61 percent to just over 50 per cent.1 This represents a delaying of home purchase and suggests many households are spending a longer period in private rental.

In Victoria, about 370,000 households or 21% of all households live in the private rental market.2 An overall growth in private rental stock has masked a contraction in the proportion of private rental properties affordable for low income households. In 2010, the National Housing Supply Council found there were 814,000 lower income private tenants for 1.4 million private rental properties which were nominally affordable. However, over three-quarters of these properties were actually occupied by higher income households, leaving a shortfall of almost 500,000 dwellings that were both affordable and available for those in the bottom 40 per cent of the income distribution.3

The private rental market is significantly segmented. Some households with adequate income value the flexibility of private rental and commonly pay a premium to live in preferred locations. Many households live in private rental before transitioning to home purchase. However, there are a significant number of households who struggle to manage private rental, many forced into marginal tenures such as rooming houses and caravan parks or experience regular crises.

Figure 1 below shows the proportion of various household types in the private rental market compared to the household population overall. This data indicates is that single person rental households are more prevalent than in the population overall.

1 J Yates, H Kendig et al (2008) Sustaining fair shares: the Australian housing system and intergenerational sustainability, Australian Housing and Urban Research Institute.

2 ABS (2006) Census. 3 National Housing Supply Council (2010), State of Supply Report .



Figure 1: Household type in the Private Rental Market

Household Type Percent of Households

Single 33.14%

Single + Child(ren) 18.72%

Couple 18.70%

Couple + Child(ren) 19.74%

Group 10.85%

Source: ABS, 2006 Census.

A significant number of low income single people living private rental are at greater risk than other household types of being unable to satisfy their housing needs in the private rental market, thus requiring a non-market intervention. Our clients who are single report significant difficulties securing private rental housing, particularly due to difficultly of meeting increased rents in recent years on a single income.

Rental market conditions

The private rental market is currently characterised by low vacancy rates and significant annual median rent movements. Key drivers include increasing demand and a substantial supply gap both in the broad market and more importantly in low cost stock in specific local markets.

In Victoria, the vacancy rate has remained below 3 per cent since 2005. Industry data for March 2011 indicates vacancy rates below 2 per cent for all of Melbourne and 1.9 in the outer suburban areas.4 This suggests a chronic supply failure.

This has contributed to significant growth in rents, with the median real weekly rent for Melbourne rising from $150 in 1995 to $350 in 2011.5

Unsurprisingly, the impact is greatest on lower income households. Research by the Judith Yates has found 65 per cent of low income private tenants or at least 600,000 households are currently experience housing stress.6 Just 8.7 percent of properties let in Melbourne during the December 2010 quarter were affordable for low income earners compared to 26.4 percent in 2005.7 Modelling by Yates indicates that total number of households in private rental is expected to increase by 80 percent to 3.3 million in 2045. Worryingly, the number of lower income households in housing stress is projected to increase by 84 percent .8

4 Real Estate Institute of Victoria (2011) Metropolitan rental market March Quarter, 2 May 2011,

www.reiv.com.au accessed 3 May 2011. 5 RMIT University AHURI/NATSEM Research Centre (2010) Falling Behind: The growing gap

between rent and rent assistance 1995-2009. Tenants Union of Victoria, available http://www.tuv.org.au/articles/files/housing_statistics/Falling_Behind_CRA.pdf Office of Housing (2011) Rental Report December Quarter 2010, available www.housing.vic.gov.au

6 Yates et al (2007), Housing Affordability: a 21st Century problem, Australian Housing and Urban Research Institute.

7 Office of Housing Victoria (2011) Rental Report December Quarter, 2010. 8 Yates et al (2007)

http://www.reiv.com.au/

http://www.tuv.org.au/articles/files/housing_statistics/Falling_Behind_CRA.pdf

http://www.housing.vic.gov.au/



Distribution of private tenants in outer suburban

Melbourne

While the tenure share for private rental is lower in outer suburban Melbourne than inner and middle ring suburban areas, it does play a significant role in local housing markets. Data on active residential tenancies bonds provided by the Office of Housing illustrates that some outer suburban areas have levels of supply which is comparable to other locations. The map provided in Figure 2 illustrates that the outer western (Werribee and Hoppers Crossing) and outer eastern (Croydon and Lilydale) corridors have a high levels of private rental supply.

Figure 2: Number of active bonds by suburb for metropolitan Melbourne (December Quarter 2010)

Source: Office of Housing (2011) Rental Report December Quarter 2010.

There is also a high percentage of private tenants in outer suburban Melbourne who receive Commonwealth Rent Assistance (CRA) payments. CRA is an income supplement paid to recipients of government income support in recognition of the increased costs of securing housing in the private rental market. The objective of CRA is to contribute to improved affordability rather than providing full affordability as in the direct provision of housing. Eligibility is not limited to those who receive Centrelink payments. Households in paid employment and eligible for Family Tax Benefit A and Family Tax Benefit B also receive CRA. Figure 3 illustrates that more the 80 percent of the rental stock in all growth corridors houses CRA recipients.



Figure 3: Geographic spread of CRA recipients June 2010, Melbourne

Source: Productivity Commission (2011) Report on Government Services 2011.

Private rental affordability in outer suburban

Melbourne

This section contains original analysis undertaken by the TUV based on the methodology used in the TUV Rental Affordability Bulletin.9 The analysis contained in Attachment A provides sample of outer suburban Melbourne.

The tables below provide an analysis of rental markets in Berwick, Craigieburn, Epping-Mill Park, Pakenham, Roxburgh Park, Melton, Werribee, Ferntree Gully and Lillydale. For each suburb the tables show dollar figures for an affordable rent and the actual quarterly median rent for suitable properties for a range of household types. The last two columns show the percentage of income consumed by the median rent and measures the household’s remaining income against the After Housing Poverty Line.

The analysis finds that the median rental property in outer suburban Melbourne is unaffordable to low income households, particularly for single job seekers and single pensioners. The median rental property often consumes considerably more than 30 percent of household income – with many households paying nearly double the accepted indicator of rental stress.

Of particular interest is the finding that even those households in paid employment do not necessarily achieve affordability in outer suburban rental market. In virtually all suburbs modelled, households reliant on minimum wage employment did not achieve the rental stress threshold. This has considerable implications for the labour market.

9 See http://www.tuv.org.au/policy+and+research/research

http://www.tuv.org.au/policy+and+research/research



While it is to be expected that households dependent on Centrelink payments will have considerable pressure on their household budgets. The extent of hardship imposed by the high cost of rental properties is alarming, particularly for job seekers, students living independently and aged pensioners.

Recommendations

To address these affordability issues in outer suburban Melbourne, the TUV recommends the following:

Recommendation: Indicators of demand.

1. The Commonwealth and Victorian governments should undertake more research and analysis of current and future demand for public and social housing, so that investment in the creation, maintenance and conversion of stock can be better targeted to geographically specific need.

Recommendations: Long term investment in social housing.

2. The Victorian Government should develop a state housing plan, consistent with the direction of national housing policy, which should be developed by the Victorian Government in consultation with key stakeholders in the housing and community sector. This plan should address all tenures and life stages with a particular focus on delivery of affordable and appropriate housing for low income and other marginalised groups.

3. The Victorian government should increase financing for social housing so that the sector can meet the real demand in Victoria. The TUV recommends the development of a ten year investment strategy designed to expand the overall stock of social housing, including an annual capital expenditure of $500 million.

4. As an interim measure, Victorian governments should increase the supply of social housing in Victoria to match the national average by 2030.

Recommendation: Planning.

5. The Victorian Government should amend the Planning and Environment Act 1987 to include an objective to promote and retain affordable housing.

6. The Victorian Government should amend the planning system to provide for the creation AND retention of low-cost housing as a guiding principle. Such amendment should include both the individual and the cumulative effect of development on affordable housing supply.

7. The Victorian Government should amend the planning system to establish Inclusionary Zoning for affordable housing to be implemented by all local government authorities. As an interim measure, local governments should be empowered by the Minister for Planning to develop local inclusionary zoning policies in their planning schemes.

8. All local governments should have the option of imposing development levies to be used for the construction or purchase of affordable housing for all residential developments and any other development that results in a loss of low-cost housing

Recommendation: Regulating private sector rent increases

9. The Victorian Government should review the rent setting process to ensure rent setting approaches contribute to housing affordability for low-income households.



10. The Victorian Government should monitor rents, rent increases and associated charges in non-mainstream forms of accommodation (such as caravan parks, rooming houses etc) to capture accurate data about rent levels in these sub-markets.



Attachment A: Rental Affordability Analysis

Affordable housing can be measured in several ways. The tables below provide an analysis of rental markets in Berwick, Craigieburn, Epping-Mill Park, Pakenham, Roxburgh Park, Melton, Werribee, Ferntree Gully and Lillydale. For each suburb the tables show dollar figures for an affordable rent and the actual quarterly median rent for suitable properties for a range of household types. The last two columns show the percentage of income consumed by the median rent and measures the household’s remaining income against the After Housing Poverty Line.

The TUV National Rental Affordability Bulletin draws on two well recognised standards:

30% of Total Income (30%TI): For low income households (defined as being in the lowest 40% of income distribution), spending 30% or more of household income on rent is considered an indicator of housing stress.10

After Housing Poverty Line (AHPL): Poverty lines are income levels derived for various household types against which poverty can be measured. Simply, if a household’s income is less than the poverty line applicable to it, then that household is considered to be in poverty.11 The AHPL refers to a poverty line with housing costs removed. The figures below show how far above or below the poverty line a household is after paying rent at the median level in dollar terms.

‘Min Wage’ refers to minimum wages workers and ‘AWE’ refers to Average Weekly Earnings. Examples of the former include child care, retail and hospitality workers, while the latter includes workers such as nurses, teachers and administrative workers. A table summarising the components of household incomes is provided at the end of the document.

The TUV supports a practical approach to the issue of affordability, believing that it is best demonstrated by households having sufficient income left over after paying their direct housing costs (i.e. their rent) for the other necessities of life.

The analysis draws on a range of sources to provide median rent levels in each state and national income data.12 There was no data available for median rents for one bedroom flats in any of the suburbs (for the last 4 quarters). An asterisk next to the 1 BR Flat property type indicates that we have used the median rent for two bedroom flats in these categories. This is based on the assumption that single tenants looking for one bedroom dwellings in these suburbs would be

10 A ‘housing first’ measure of affordability originally derived from commercial lending terms. The

assumption is that housing costs have first priority out of the household income.

11 The Henderson Commission of Inquiry into Poverty (1975) established the poverty line, based on a benchmark income of $62.70 for a family of two adults and two dependent children in the

September quarter of 1973. This amount was the disposable income required to support the basic needs of a family of this size. Poverty lines for other household types are derived from this

benchmark figures using equivalence scales. Since then, the Melbourne Institute of Applied Economic and Social Research has updated the HPL using an index of per c apita household disposable income, calculated using estimates provided by the Australian Bureau of Statistics

(ABS). Thus, because the index is based on estimates, the poverty lines themselves are estimates. Also, updating poverty lines according to changes in household disposable income means that the

poverty lines are relative levels of poverty - as real incomes rise, so will poverty lines. The value of the poverty lines will therefore be generally stable relative to general standards of living.

12 Rent data is based on data provided by the Office of Housing. Income data is collected from

Centrelink, the Family Assistance Office, Fair Work Australia and the ABS. Full citations are available on request.



forced to consider renting a two bedroom property or looking elsewhere for accommodation. There was no data (for the last 4 quarters) for 1 and 2 BR Flats for Craigieburn.

Melbourne – all suburbs

Affordable Rent Median Rent

Household Type Property Type

Rent (30% of Total

Income) % of

Median Rent Rent % of

Income Difference from AHPL

Single – Austudy 1 BR Flat $58.00 20.0% $290.00 >100% ($207.06)

Single (>21yrs) Sharing – Newstart 2 BR Flat $76.00 44.7% $170.00 62.2% ($103.81)

Single - Aged Pension 1 BR Flat $124.00 42.8% $290.00 69.8% ($81.41)

Single Parent (1 child) - Parenting 2 BR Flat $149.00 43.8% $340.00 67.4% ($150.36)

Couple (2 children) - Newstart 3 BR House $203.00 61.5% $330.00 48.8% ($195.28)

Couple (2 children) - AWE 3 BR House $388.00 117.6% $330.00 25.5% $339.84

Couple (2 children) - Min Wage 3 BR House $269.00 81.5% $330.00 36.8% ($54.35)

Berwick



Rent (30% of Total

Income) % of

Median Rent Rent % of Income Difference from AHPL

Single - Austudy 1 BR Flat* $58.00 20.0% $290.00 117.8% ($207.43)


Single - Aged Pension 1 BR Flat* $124.00 42.8% $290.00 69.8% ($81.78)



Couple (2 children) – AWE 3 BR House $388.00 117.6% $330.00 25.5% $338.73


Epping



Rent (30% of Total

Income) % of



Single - Austudy 1 BR Flat* $58.00 20.7% $280.00 113.8% ($207.43)

Single (>21yrs) Sharing - Newstart 2 BR Flat $76.00 54.3% $140.00 51.2% ($74.18)








Pakenham



Rent (30% of Total

Income) % of



Single – Austudy 1 BR Flat* $58.00 24.2% $240.00 97.5% ($201.33)







Roxburgh Park



Rent (30% of Total

Income) % of



Single – Austudy 1 BR Flat* $58.00 22.9% $253.00 102.8% ($207.43)







Melton



Rent (30% of Total

Income)

% of Median

Rent Rent % of


Single - Austudy 1 BR Flat $58.00 24.2% $240.00 97.5% ($200.96)


Single - Aged Pension 1 BR Flat $124.00 51.7% $240.00 57.7% ($31.41)


Couple (2 children) – Newstart 3 BR House $203.00 78.1% $260.00 38.5% ($125.28)


Couple (2 children) - Min Wage 3 BR House $269.00 103.5% $260.00 29.0% $15.65

Werribee



Rent (30% of Total

Income) % of



Single – Austudy 1 BR Flat $58.00 29.0% $200.00 81.3% ($160.96)


Single - Aged Pension 1 BR Flat $124.00 62.0% $200.00 48.1% $8.59







Ferntree Gully



Rent (30% of Total

Income)

% of Median

Rent Rent % of


Single - Austudy 1 BR Flat* $58.00 21.5% $270.00 >100% ($207.06)







Lilydale


Household Type Property Type Rent

(30%TI1)

% of MR Rent

% of Income

Diff from AHPL

Single – Austudy 1 BR Flat $58.00 29.0% $200.00 81.3% ($160.96)


Single - Aged Pension 1 BR Flat $124.00 62.0% $200.00 48.1% $8.59







Incomes13

Household Type Income Components Total Weekly Income

Single - Austudy Austudy

CRA

$246.10

Single (>21yrs) - Newstart [Sharing]

Newstart

CRA

$273.25

Single - Aged Pension

Aged Pension

Pharmaceutical Allowance

CRA

$415.65

Single Parent (1 child) - Parenting

Family Tax Benefit A

Family Tax Benefit B

Parenting Payment

Pharmaceutical Allowance

CRA

$478.30

Couple (2 children) - Newstart

Parenting Payment

Newstart

Family Tax Benefit A (Child 1)


CRA

$676.70

Couple (2 children) - AWE

Average Weekly Income



Family Tax Benefit B (Children 5-15)

CRA

$1,292.06

Couple (2 children) - Min Wage

Weekly Minimum Wage



Family Tax Benefit B (Children 5-15)

CRA

$897.87

13 Income data is collected from Centrelink, the Family Assistance Office, Fair Work Australia and the ABS. Full citations are available on request.

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