New Fiscal Policies Shift the Outlook for Rental Housing
Amid an extraordinary economic slowdown, the Australian economy is heading for its first recession in almost 30 years. Indicators suggest this fall in demand is starting to weigh on the property market. But a frequent stream of monetary, fiscal and social policies are being rolled out in an attempt to soften the blow to the broader economy, which will also help to insulate housing markets.
Over March, the JobSeeker payment was increased by $550 per fortnight, effectively doubling the highest allowance. Additionally, a $130 billion wage subsidy payment was announced, which would see employers receive $1,500 per employee per fortnight. For eligible employers and employees, workers would receive a gross wage supplement of $1,500 before tax on a fortnightly basis.
The game-changing package has led Westpac economists to reduce their forecast for peak unemployment from 17.0%, down to 9.0%. This will ultimately lessen downward pressure on housing demand, as more people are able to retain their job during and after the COVID-19 shutdown.
How many rentals are ‘affordable’ on the JobKeeper package?
The JobKeeper subsidy may also see fewer households fall into housing affordability stress. Housing affordability stress is a situation where households expend more than 30% of income on housing costs, such as rent. To understand how many households may be better off, it is worth considering how many rentals are currently able to be serviced on 30% of the JobKeeper payment.
Table 1 shows the portion of the rental market in capital city and regional areas that could be serviced by an individual using just 30% of the JobKeeper or JobSeeker payments (i.e, what portion of the rental market can be rented for $450 per fortnight, or $330 per fortnight). In considering typical household composition, Table 2 reflects the same analysis for a couple both receiving a benefit. The analysis doesn’t take into account tax on the JobKeeper payment, or voluntary employer top-ups of the JobKeeper amount.
What the data does highlight though is that the JobKeeper payments significantly increase the portion of affordable private rentals in Australia. Flat payments are proportionately beneficial for renting households where rents are cheaper, such as in Regional Tasmania and
South Australia. Incidentally, these are areas that may be more severely impacted by the economic slowdown in terms of the concentration of the labour force in agriculture, food service, tourism and accommodation. But even with the relatively small portion of rental properties being affordable elsewhere, it’s likely that current social distancing measures would see less discretionary spending, enabling a higher portion of income to be used in servicing rent.
Additionally, further protections for renters are in the works. Federal and state leaders announced a 6-month moratorium on residential and commercial tenant evictions, for households in financial stress who cannot meet payments because of the coronavirus impact.
At a press conference the next day, Prime Minister Morrison made an allusion to further rental assistance, such as a rent guarantee, but such details were “still being worked through.” This would ease pressure on renters to service their full rent commitments, however the impact on landlords remains uncertain.
Another note on this data is that it reflects rental valuations as of early April. As income and job prospects decline, the private rental market will likely see a downwards adjustment, with landlords of vacant properties potentially having to lower rents in order to meet the market.
A final takeaway from this data may be that now is an opportune time to explore more social and affordable housing supply. As well as added benefits to the construction sector, the government could look to create housing supply that compliments the payments being offered to renters.