Rental pain on par with mortgage stress severity: RBA governor

Though the stay in the cash rate came as a welcome reprieve for borrowers, Mr Lowe cautioned that the decision did not signal the end of rises within Australia, describing the April call as a “pause before we proceed”.

Mortgage holders, then, could be in for further financial pain, though Mr Lowe made a point of casting light on the issues facing renters within the current market, for whom interest rate rises also foreshadow tough financial times ahead but who will likely continue to face rising rents regardless of whether their landlords get a mortgage break.

As Mr Lowe explained, the events of the past few years have meant that small gains in housing growth have done little to alleviate tight vacancy numbers. Meanwhile, a recent influx in new migrants is further exacerbating an issue that takes a long time to rectify once pressures become apparent.

“Over recent years, growth in the number of dwellings in Australia has exceeded growth in population. This was especially so during the pandemic, when population growth declined to its slowest pace since the First World War. Despite this, there was only a modest increase in the rental vacancy rate,” he explained.

“This is primarily because the demand for residential floorspace increased as people worked from home and the average number of people living in each household fell”.

Following the opening of Australia’s international borders, Mr Lowe said that the country is now in a “different phase,” with the country’s demand for housing gathering pace at a rate that supply is not expected to meet.

“Population growth has picked up sharply and it now seems likely that the annual rate of population growth will soon be around 2 per cent,” he said, putting the current rate of growth near the peak reached during the resource boom of the 1970s.

“In contrast, the expansion in the supply side of the housing market is expected to be fairly modest,” Mr Lowe noted.

“It takes a long time for housing supply to respond fully to shifts in population growth; in the previous episode of strong population growth, it took around five years.”

While some small relief might come from an increase in the average number of inhabitants per dwelling, which is likely as the international student population continues to swell, this movement will do little to loosen vacancy rates.

“Even if [the number of people living in each dwelling increases], it is likely that the balance between demand and supply in the housing market will result in rent inflation being quite high for a while. This will be one factor adding to inflation over the period ahead,” Mr Lowe said.

Put simply, the RBA head opined that based on what they’re hearing from banks’ hardship services, “rental stress is at least as big an issue at the moment as mortgage stress”.

He described the pickup in population growth as a “surprise,” given the sentiments following Australia’s COVID-19 policy that cast the country in an “unfriendly” light to foreigners. But with the flow of new migrants expected to continue, Mr Lowe cautioned that housing supply was “a very important issue for a country that has large swings in its population growth”.

“People are coming here again; they’re coming in large numbers,” Mr Lowe stated. “We have to find somewhere for them to live”.