Declining home ownership rates in Australia

Alicia Hall, Statistics and Mapping, and Dr Matthew Thomas, Social Policy

Key issue
The data indicate a small decline in the home ownership rate in Australia since 1961.
However, the rates of decline amongst certain groups—including younger households and those on lower incomes—have fallen more dramatically.
Should it continue, this trend has potentially significant social and economic implications.

Changes in home ownership levels in Australia

Overview

Overall household home ownership rates in Australia (including dwellings with a mortgage and those owned outright) have hovered around 70 per cent since 1961.

At the most recent Census of Population and Housing (2016), the proportion of private dwellings that were owner occupied was 67.1 per cent, the lowest figure recorded since 1954. Other data sources also provide evidence of a slight decline in aggregate household home ownership rates. The Australian Bureau of Statistics (ABS) Housing Occupancy and Costs (2015–16) indicated that 70.6 per cent of all households were owners in 1999–00, compared to 67.5 per cent in 2015–16. The Melbourne Institute’s Household Income and Labour Dynamics in Australia (HILDA) Statistical Report (2016) indicated a fall in home ownership rates over a similar time frame, from 68.8 per cent of households in 2001 to 64.9 per cent in 2014.

Outright home ownership has declined from 42.8 per cent of households in 1995–96 to 30.4 per cent of households in 2015–16. For those households nearing or in retirement (household reference person aged 55 years and over), ownership without a mortgage has fallen from 77.0 per cent in 1995–96 to 62.0 per cent in 2015–16. This, and lower rates of home ownership amongst younger households, has implications for Australia’s retirement income system in the future.

Ownership by age

Certain age groups exhibit more significant declines in home ownership rates over time. Between 1971 and 2016, home ownership for households with a reference person aged 25–34 years declined from 57.0 per cent to 44.6 per cent, whilst in the 35–44 years age range, rates fell from 71.4 per cent to 62.2 per cent. For these younger households, home ownership peaked in 1981, at 61.1 per cent for those aged 25–34 years and 75.3 per cent for those aged 35–44 years. Figures by individuals (and not by household) are typically even lower, as individuals often live in owner-occupied dwellings where they are not the owners (for example, adult children with their parents), and are not identified in the household-level statistics (which are classified by tenure of head of household). Although older households are overall more likely to own their own home than younger households, it is not clear that these younger cohorts will catch up to the home ownership rates of previous generations.

Figure 1: home ownership rates by age of household reference person, based on Census data

Home ownership rates by age of household reference person, based on Census data

Source: Based on ABS Census data, 1971 to 2016; AIHW analysis of customised report. * Data for 1991 interpolated using linear interpolation. Data excludes ‘not stated’.

Ownership by income

Lower income households have experienced greater declines in levels of home ownership than more affluent households. Burke, Stone and Ralston (2014) found that the steepest decline in home purchase rates for the 25–34, 35–44 and 45–54 age cohorts were in the bottom two income quintiles between 1981 and 2011. Meanwhile, Yates estimates that, between 1998–99 and 2013–14, rates of home ownership fell across all after-tax, equivalised income quintiles (that is, adjusted for size and composition), except for the highest quintile where the rate of home ownership increased slightly. Flood and Baker (2010) also highlight the accelerated decline among those on lower incomes aged 45–64 from 1996 to 2006.

Some of the key drivers of changes in home ownership rates

Demographic factors

Demographic factors, such as household and family composition, are likely to have contributed to the decline in ownership rates amongst younger households in Australia. The composition of families has changed in recent decades, with the proportion of ‘couples with children’ as a proportion of all families dropping from 54.0 per cent in 1991 to 45.0 per cent in 2016, and the proportion of couple families without children increasing from 32.0 per cent to 38.0 per cent in the same period. The number of one-person households as a proportion of all households in Australia has also increased from 18.8 per cent in 1986 to 24.4 per cent in 2016.

These changes have almost certainly impacted on home ownership rates, as particular family and household types have higher propensities to enter into home ownership, due to higher income and wealth levels and/or the desire for stability and security. For example, Burke, Stone and Ralston (2014), using Census data from 1981 to 2011, showed that for people aged 25–44 years, lone persons and sole parents are much less likely to have a mortgage than couples (with or without children). In their 2015 submission to the House of Representatives committee inquiry into home ownership, Reserve Bank of Australia (RBA) analysis of HILDA data from 2001 to 2013 for all age groups showed a similar trend (although the figures are somewhat different).

At a broader level, as discussed by Yates, it is probable that the accelerated ageing of the population, combined with high ownership rates amongst older households, have hidden the effect of falling home ownership rates amongst younger households from Australia’s aggregate home ownership rates.

Demographic factors have also indirectly affected ownership rates by increasing demand for housing in a constrained market. Average household size has declined in Australia, from 2.98 persons in 1971 to 2.6 persons in 2016, increasing the overall demand for dwellings (although this decline levelled out in the early 2000s). After reasonably stable growth in the 1990s and early 2000s, the rate of growth of Australia’s population significantly increased from the mid-2000s, largely as a result of net overseas migration. Supply has not always matched the demand for housing stemming from population growth, resulting in higher prices, particularly for detached houses where supply has been less responsive.

Economic and structural factors

Yates argues that whilst it was socio-demographic factors that drove the decline in the mid-1970s and 1980s, economic and institutional factors underpinned the fall in the 1990s and 2000s (although these factors are interlinked).

Significantly, housing prices rose in Australia between the mid-1990s and mid-2000s, on both an absolute basis and relative to income (RBA, 2015). Without concomitant increases in incomes, this is likely to have constrained the ability of more marginal groups to enter the housing market (in spite of lower deposit requirements). Census data indicates that there were falls in home ownership rates across most age groups during the mid-1990s and 2000s, including those aged 25 to 44 (see Figure 1).

Other economic factors likely to have affected home ownership rates for younger households are the high relative cost of ownership compared to renting in the short term, and the existence of HECS/HELP education debts reducing their ability to save for a deposit (Yates, 2015).

As noted previously, low income earners have experienced declines in home ownership rates not experienced by those at the top end of incomes. These declines are likely to be at least partly caused by competition from two-earner households and high income earners that have increased their demand (and prices) for housing, encouraged by the taxation system and the relaxation in lending restrictions on borrowing for higher income households (Yates, 2015). Other factors include: high nominal interest rates resulting in increased borrowing costs in the 1980s, a limited supply of affordable housing, and the location of affordable supply at the periphery of cities.

Implications of falling home ownership rates

Private rental sector affordability and crowding out

Australians who are unable to purchase their own home and who do not qualify for, or are unable to gain access to, social housing must compete for affordable housing with an increasing number of people in the private rental sector.

Social housing is housing that is made available at below market rates to low income households who are unable to access suitable accommodation in the private rental market. It is comprised of public housing, community housing, state-owned and managed Indigenous housing (SOMIH) and Indigenous community housing.

In 2015–16, just over 25.0 per cent of Australian households were renting in the private rental sector. Between 1994–95 and 2015–16 the proportion of households renting privately increased from 18.4 per cent to 25.3 per cent. Over the same period there was a decline in the proportion of households renting public housing (from 5.5 per cent to 3.5 per cent) and in home ownership (from 71.4 per cent to 67.5 per cent).

With increasing numbers of moderate-to-higher income households potentially being forced into the private rental sector, and possibly for longer periods, lower income households are likely to struggle to gain access to affordable rental properties in areas with greater employment opportunities.

In 2015–16, renters in the private sector spent, on average, 21.0 per cent of their gross household income on housing costs. However, lower income households in the sector spent an average of 32.0 per cent of their income on housing costs. As such, many of these households were experiencing ‘housing stress’. A household is typically described as being in housing stress if it is paying more than 30.0 per cent of its income on housing costs.

A substantial proportion of low income private renters are likely to receive Commonwealth Rent Assistance (CRA). This is a non-taxable income supplement added to the payment for eligible income support recipients who rent in the private rental or community housing sectors.

While CRA has helped to reduce the number of low income households that experience housing stress, CRA thresholds and rates have failed to keep pace with rental costs. Despite receiving CRA, just over 40.0 per cent of low income households experienced housing stress in 2015–16. That such a large proportion of people in receipt of income support should be experiencing housing stress is perhaps unsurprising, given the insufficient supply of affordable private rental stock.

According to the latest Anglicare Rental Affordability Snapshot, of the 69,485 properties listed for rent across Australia on 23 March 2019, only four per cent were affordable and appropriate for households in receipt of government-provided income support, including CRA and Family Tax Benefit (FTB). Moreover, only two properties were affordable and appropriate for a single person in receipt of Newstart Allowance and one for a single adult on Youth Allowance. Twenty six per cent of listed properties were affordable and appropriate for households on the minimum wage, with just over two per cent affordable and suitable for a single person on the minimum wage.

With people in receipt of income support being effectively priced out of the private rental sector, there are additional demands being placed on the social housing sector.

Social housing sector limited and under stress

In 2016, social housing made up just over four per cent of Australia’s total housing stock. Social housing has been growing in recent years, with much of this expansion occurring in the community housing sector. However, social housing has been falling as a proportion of Australia’s overall housing stock over the past 20 years and is not keeping pace with household growth or with demand.

As at 30 June 2018, there were 140,578 applicants on waiting lists for public rental housing across Australia, 10,793 applicants awaiting allocation to SOMIH, and 43,844 applicants waiting for mainstream community housing. (Some applicants may be on more than one wait list, and, as a result, these figures may be an overestimate of the total.)

Given the high demand for public rental housing, a vast majority of new allocations are being made to households in greatest need. These are households that are homeless or have very high rental costs, or are living in housing that is inappropriate to their needs, adversely affecting their health, or placing their life and safety at risk. Social housing has effectively become welfare housing.

The high proportion of social housing tenants experiencing social and economic difficulties poses problems for the sustainability of the sector. For some time, successive federal governments have placed a greater emphasis on CRA to support eligible renters in the private rental sector than on providing support for social housing. This prioritisation of funding has contributed to declining Australian Government outlays on social housing and, by the mid-1990s, CRA expenditure surpassed Commonwealth-State Housing Agreement (CSHA) expenditure. This has been the case ever since.

Australian Government financial assistance to the states and territories for social housing under the CSHA and subsequent National Affordable Housing Agreement (NAHA) and National Housing and Homelessness Agreement (NHHA) has varied over time. However, the real value of this funding has been generally falling in real terms since the late 1980s.

Faced with decreased Australian Government funding for social housing and unable to charge market rents for public housing, state and territory governments have struggled to cover the operating costs of their social housing stock and to fund new dwellings.

Older households and retirement incomes

Yates and Bradbury, in a Luxembourg Wealth Study working paper, described home ownership as the fourth pillar of social insurance in Australia, with the other pillars being the Age Pension, mandatory private superannuation saving, and voluntary saving. They have done so on the grounds that high levels of owner occupation and the lower housing expenditure needs of outright owners have allowed housing wealth to be treated as a ‘cornerstone’ of retirement income in Australia, and for the Age Pension to be set at a low rate. With declining levels of home ownership, Yates and Bradbury suggest that this fourth pillar of social insurance is ‘crumbling’.

Older households that were not able to access or sustain home ownership when they were younger are more likely to face high housing costs in their retirement than similar households who are home owners. As a result, these households are more likely to have inadequate levels of income to meet their non-housing needs.

Based on modelling for the Australian Housing and Urban Research Institute conducted by Yates and others, projected declines in home ownership among younger Australians will, over the next quarter century or so, result in:

[a] disproportionate increase in the number of older households with relatively high levels of housing costs because more will be renting and/or more will still be paying off their mortgage (because of delayed entry into the housing market).

Close to 15.0 per cent of older Australian households are renters, and this group is over represented among both public housing tenants and long-term renters in the private market.

While older tenants in social housing benefit from lower rents and secure tenure, older households in the private rental market have higher housing costs as a proportion of income than any other group in the population. As the Productivity Commission notes, they are also likely to be disproportionately affected by the insecurity of tenure inherent in private rental because this form of tenure is a necessity rather than an attractive choice for them.

The rules for tenants in the private rental sector are the responsibility of state and territory governments. While these rules vary across the jurisdictions, in international terms, Australia has relatively weak laws regarding security of tenure and rent controls.

Concluding comments

Based on current trends, an increasing number of Australians are unlikely to become home owners.

Declining home ownership rates are likely to exacerbate existing pressures on the private rental sector, with a disproportionate impact on lower income households.

At this point, policy makers can either choose to accept lower home ownership rates, and put in place the necessary legislative and policy changes to address the broader and social economic implications of such changes, or seek to slow the decline through a range of other strategies.

Given that the declining home ownership situation has developed over many decades, and is embedded in Australia’s economic and social structures, reversing the decline would not be a straightforward exercise.