Residz Team 5 min read
Unless you’re homeless, you may not realise you’re experiencing housing stress.
Yet the ABS shows more than one million households were experiencing housing stress in 2019-20.
And the ABC recently reported different data showing at least 640,000 Australian households were currently in housing stress, using new analysis by the UNSW's City Futures Research Centre.
So, what is housing stress, and what is not housing stress? Come with us as we try to find out.
What is housing stress?
Housing stress describes a situation where a household spends more than 30% of its income on housing costs, including rent or mortgage payments, utility bills, and other associated expenses.
It’s often clarified as the 30/40 rule, which is if housing costs exceed 30% of a low-income household’s gross income (in the lowest 40% of income), the household is experiencing housing stress.
What do we know about housing stress?
Studies show that worrying over not being able to make mortgage or rental payments can contribute significant damage to wellbeing.
That’s a real concern. According to the Australian Institute of Health and Welfare, 11.5% of households spent 30% to 50% of gross income on housing costs with another 5.5% spending 50% or more in 2017-18 (ABS 2019).
AIHW says housing stress can be more prevalent among renters than homeowners, especially those renters in a tight rental market with a lower income to start with.
“Households with low income in the private rental market were more likely to be in housing stress, spending on average 32% of income on housing costs, compared with homeowners with a mortgage (29%) or homeowners without a mortgage (6.0%).”
Signs of housing stress
So how would you know if housing stress is affecting you? Here are some signs that your household may be experiencing housing stress:
High housing costs - If a significant portion of your household income goes to paying your rent or mortgage, plus your gas and electricity bills, rates, insurance, and repairs.
Financial hardship - If you’re struggling to pay for basic living expenses, such as food and transport, as a result of high housing costs.
Rent arrears or mortgage defaults - If you’re falling behind on your rent or mortgage payments, or are at risk of defaulting on your mortgage.
Overcrowding - If you’re living with too many others in a home (i.e. there’s too many people for its size). Overcrowding can make it difficult to maintain adequate living standards and can have negative impacts on health and wellbeing.
What is housing stress not?
Housing stress is not temporary financial difficulties, such as a short-term reduced income due to unemployment or illness. Yes, these difficulties can cause financial strain but may not mean you’re experiencing ongoing housing stress.
Housing stress is not necessarily the result of poor budgeting skills. While good budgeting helps, it’s not always enough to cope with high housing costs.
Housing stress is not living frugally because you’ve chosen to make high mortgage repayments to pay off your home loan earlier, as a form of saving.
Housing stress is not necessarily the same as homelessness. While housing stress can lead to homelessness, being homeless is when a person or household doesn’t have a safe, secure, and appropriate place to live (whereas housing stress refers to a situation where a household is experiencing financial pressure as a result of high housing costs).
How can a wealthy country have housing stress?
Australia is one of the most expensive housing markets in the world by “median multiple.”
According to the OECD our average annual disposable income is around $55,000. But we also have some of the highest property prices and rents in the world.
Demographia’s 2022 International Housing Affordability data shows Sydney’s median house price is 15 times more than the average household income (beaten only by Hong Kong at 23 times). Melbourne’s median house price is 12 times the average household income.
As a result, average annual mortgage payments can range from about $31,600 to $60,100 a year (Canstar) and average rental payments are around $20,800 per year.
With interest rates still rising, and cost of living the highest it’s been in 20 years, more and more households will be under housing stress.
Other measures to identify housing stress
Housing stress is becoming one of Australia’s greatest societal challenges. And policymakers, researchers and housing advocates use a range of measures to identify and tackle this problem. They include:
The Rental Affordability Index (RAI) measures the affordability of rental housing in Australia. In late 2022, the RAI showed that 40% of low-income households were in rental stress and struggling to find money to pay for food, heating and healthcare.
The Household Expenditure Measure (HEM) measures the minimum amount of money required to cover basic living expenses, including housing costs, for different household types in different regions of Australia. The HEM classifies more than 600 items in the Australian Bureau of Statistics’ Household Expenditure Survey as absolute basics, discretionary basics or non-basics.
According to Savings.com.au, lenders use the HEM to estimate a borrower’s living expenses, which helps determine how much money someone can afford to borrow for a home loan.
But Savings.com.au says the use of HEM is widely controversial because it can underestimate non-essential living expenses, potentially leaving borrowers struggling to make their home loan repayments if approved.
Summary
Where you live and how much you earn are the biggest factors in whether housing stress is going to affect you.
But the pandemic threw a curve ball at many households, who may have lost businesses, their main breadwinner, their health, or their stable home.
The tsunami effects of COVID-19 in the property market saw huge increases in the cost of housing, and led to an increase in the number of new households (as rental groups broke up and adult kids moved out of home).
It became the perfect storm for a surge in people experiencing housing stress.
If you’re one of these people, ask for help.
Speak to your lender, property manager, a financial counsellor, or a housing support service. Financial Rights is one of two services in NSW that answers the NDH. If you are struggling with debt, you can talk to a free financial counsellor over the phone on 1800 007 007.
More research with Residz
Residz specialises in all sorts of research that can help renters, buyers and sellers find out information about property.