Max Chandler-Mather says rents are going up at the fastest rate in 35 years. Is that correct?

News Desk

1 year ago

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The claim

Under pressure to ease the rental crisis in Australia, Prime Minister Anthony Albanese recently joined state and territory leaders in unveiling a plan to boost affordable housing.

The initiative includes a $3 billion federally funded incentive for states and territories to build additional homes, along with an agreement limiting rental increases to once a year.

The deal came amid the federal government’s ongoing stoush with the Greens over Labor’s signature housing policy: the Housing Australia Future Fund.

The Greens are refusing to support the legislation, instead calling on the government to increase direct investment in public housing and to coordinate a two-year rent freeze and rental caps.

The Greens’ housing spokesman, Max Chandler-Mather, denied that the National Cabinet’s agreement to limit rental increases to once a year represented progress, arguing that such a policy already existed in almost all jurisdictions and would do little to protect renters.

“The problem isn’t that rents can only go up every 12 months,” he told the ABC on August 17. “The problem is at the end of those 12 months, rents are going up by record amounts.

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“In fact, they are going up at the fastest rate in 35 years.”

Is that correct? RMIT ABC Fact Check crunches the numbers.

The verdict

Mr Chandler-Mather’s claim is a fair call.

The housing rents component of the latest quarterly consumer price index (CPI) data shows that over the three months to June 30, rents increased by 2.5 per cent.

Indeed, this was the fastest quarterly increase recorded since the September quarter of 1988 — just under 35 years ago.

Experts noted it was reasonable to make a claim about rising rents based on quarterly data.

However, they also said the broader context should be taken into account.

For example, when considered on an annualised basis, rents over the year to the end of June increased by 6.7 per cent which was below the 8.4 per cent increase recorded over the year to December 2008 — almost 15 years ago.

Also, the recent spike in the cost of rentals was preceded by more than a decade of slow or negative growth in rents.

High demand for rental properties has seen long queues forming at rental property inspections.(ABC News)

Measuring rent increases

Experts told Fact Check the most authoritative data on rents was captured by the CPI published by the Australian Bureau of Statistics (ABS).

CPI data measures changes in rents across a broad sample of rental properties including both public and private dwellings.

Joey Moloney, an economist and senior associate at the Grattan Institute, noted there was one key drawback with this data: it only reports on capital city rents.

Nevertheless, he said the CPI was still the “best measure of the rents paid across the board”.

According to Andrew Beer, the executive dean of the University of South Australia’s Business School, that’s because alternative sources of data, including for the regions (for example, figures published by CoreLogic or Domain) were based on “asking rents”.

Professor Beer said asking rents data only accounted for changes in the cost of new leases for vacant properties which made up a very small proportion of the overall rental market — approximately 2 to 3 per cent.

In contrast, CPI data measured changes in leases for both vacant and occupied dwellings giving a clearer snapshot of the overall market, he said.

In an email, a spokeswoman for Mr Chandler-Mather told Fact Check his claim was based on quarterly CPI data.

What the quarterly data shows

The latest CPI data available when Mr Chandler-Mather made his claim shows that over the three months to June, capital city rents increased by 2.5 per cent.

This was the highest quarterly increase in rents since the three months to September 1988 (3.2 per cent) — just under 35 years ago.

The bigger picture

Mr Moloney said referencing a quarterly increase to make a general claim about rental increases was fair.

But, as Ben Phillips, an associate professor at the Australian National University’s Centre for Social Research and Methods, pointed out, Mr Chandler-Mather’s claim didn’t capture changes over the longer term.

“I think I’d be a little cautious making too much out of one quarter of growth,” he said.

Another way of looking at the CPI data is to compare growth on an annualised basis, according to the experts.

By this measure, rents climbed by 6.7 per cent over the year to June 30.

However, this rate is slower than for other periods over the last 35 years. For example, rents grew by 8.4 per cent in the year to December 2008 amid the global financial crisis.

The June figure is below the highs experienced in the late 1980s coinciding with high inflation and a booming stock market.

Over the year to June 1988, for example, rents jumped by 11.6 per cent.

Mr Phillips said “quarterly growth figures should be put into perspective next to a long period of no or low rental growth”.

Over the past decade, as the chart above illustrates, increases in rents steadily declined before contracting sharply in the June and September quarters of 2020 when Australia’s border was closed due to COVID-19 restrictions.

So, while the recent spike in the growth in rents is significant, it follows a period of sustained low and negative growth.

What the experts say

Experts told Fact Check recent rent increases come off the back of low and negative growth in recent years.(ABC Central Victoria: Shannon Schubert )

Mr Phillips told Fact Check that it was also important to consider relative increases in incomes.

“Over the past five years, it is still the case that incomes have risen more quickly than rents and low income renters who rely heavily on welfare payments will have received increases in welfare payments that are as [much as] or more substantial than rent increases (on average),” he said via email.

“There are certainly some renters who have received very strong rent increases and that’s a problem for some of those households but the overall story, I think, for the majority is less drastic than some would claim.”

Professor Beer said the longer-term view should also be taken into account.

“If you take a longer-term view, what you see is the rate of increase has actually, over the longer time frame, over the last decade, been relatively low and what we have seen is a sudden uptick in the changing market conditions.”

He pointed to factors including a long-term undersupply of new dwellings, growth in major cities, the rapid return to immigration post-pandemic, the prohibitively high cost of purchasing a house and a shortage of public and social housing as driving up costs.

But Mr Moloney warned there could be more pain to come for renters, noting that while the annualised figure still remained below its 35-year high, it was likely to increase.

“The most recent annual number is the highest since June 2009, but it’s very likely going to rise further as the front of the market flows through to the stock,” he said.

“The fact that the quarterly number is ticking up tells you that, by mathematical definition, the annual number will eventually get pulled up too.”

He pointed to continued increases in asking rents in most capital cities — the leading indicator of the future direction of rents tracked by the CPI — as evidence for likely future increases across the broader market.

Principal researcher: Sonam Thomas

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