Masterclass: How We Ended Up in a Rental Crisis
If you’ve tried to rent a home in Australia recently, you’ve probably felt the squeeze: sky-high rents, dozens of applicants competing, and slim pickings in many areas. By now, people are calling it a rental crisis – and it truly is. But how did we get here? I want to walk you through the key factors that led us to this point. It wasn’t just one event; it’s been building for years. In this post, I’ll explain how booming demand, lagging supply, and some policy choices (and mistakes) over time all combined to create the challenging rental market we face today. This is a story of economic and social changes, and understanding it is the first step toward fixing the problem. So let’s rewind a bit and see what has driven Australian rentals into crisis.
Table of Contents
Rising Demand Over Decades
Stagnant Supply and Investment Imbalance
Policy Missteps That Added Pressure
The COVID-19 Shock and Aftermath
Welcome to the Rent Crisis
Rising Demand Over Decades
First, let’s talk about demand – essentially, how many people need or want to rent homes. In Australia, demand for housing (including rentals) has been on a steady upward march for decades. Why? One big reason is population growth. Australia’s population today is roughly double what it was 50 years ago. We’ve had a high migration rate, especially from the late 90s onward. Think about it: every year, hundreds of thousands of new people arrive (international students, skilled migrants, refugees). Almost all of them need a place to live, and the vast majority rent when they first settle. For example, during the mid-2000s mining boom, net overseas migration surged to record levels – cities like Sydney, Melbourne, Brisbane swelled with newcomers, adding a lot of rental demand in a short time.
At the same time, demographic changes within Australia increased demand. Households have gotten smaller on average – more people are living alone or as couples without kids, compared to a generation or two ago. Smaller households mean we need more dwellings for the same number of people. If two roommates each decide to get their own one-bedroom apartment, that’s an extra rental needed even though the population didn’t change. Social trends like later marriage, higher divorce rates, and an aging population (with some older folks preferring to downsize into a rental) also contributed. More young adults spent longer in education and urban careers, often delaying buying a house. All this translated into more people renting and renting for longer periods.
Another aspect of rising demand is that renting became more common across income levels. In past decades, many middle-income families would have bought a home in their 20s or 30s and exited the rental market. But as buying became harder (we’ll get to that), a lot of these families remained as renters. So instead of primarily lower-income households renting, now you have a broader spectrum. That increased competition for rental properties across the board – professionals and double-income families were vying for rentals that maybe previously only lower-income families would have taken, driving up prices in that segment.
It’s also worth mentioning urbanisation and lifestyle preferences. Over time, Australia’s growth has concentrated in the big cities and certain booming regional areas (like coastal towns or mining regions). These are exactly the places where rental demand has been intense. Young people flocked to Melbourne’s cafes, Sydney’s job market, or the lifestyle of South-East Queensland – and usually, they rent when they arrive. Some regional towns experienced demand spikes too (for example, mining towns in WA and QLD had huge rent surges during resource booms, as workers poured in and there weren’t enough houses).
In short, the rental market has had a mounting wave of people to serve. A growing population, smaller households, and more long-term renters meant that demand has been very strong year after year. This by itself doesn’t cause a crisis – if homes are built to meet demand, the market stays balanced. But in our case, as we’ll see next, the supply side didn’t keep up, and that’s when the trouble starts.
Stagnant Supply and Investment Imbalance
Now let’s look at the supply side of the equation – the number of rental homes available. Ideally, as demand goes up, supply should increase too (build more houses and apartments, convert other buildings to residences, etc.). What happened in Australia is that supply did increase, but not nearly enough in the places and price ranges needed. And sometimes, supply was increasing for owner-occupied housing but not for rentals specifically.
One critical piece is that for a long time, government pulled back on building housing. Decades ago, Australia had a substantial public housing construction program. But from the 1990s onward, governments shifted away from directly providing housing to relying on the private market. This means that tens of thousands of homes that might have been built as affordable rentals were not built. The private sector was supposed to fill the gap. Sometimes it did – especially for upscale or mid-market housing where profits were good – but it often didn’t for lower-cost housing. So there was a kind of chronic undersupply, especially of affordable rentals for low-income people. The proportion of homes that are social housing actually shrank over time, even as population grew, which effectively forces more people to compete in the private rental space.
Another factor: investor activity in housing did not always equate to more supply. Australia has had a huge surge in property investment (people buying houses or units to rent out) since the 2000s. You’d think more investors means more rentals, which it did to an extent, but there’s a catch. Many investors buy existing properties rather than funding new construction. For example, an investor might buy a 30-year-old house from an owner-occupier and then rent it out – yes, one more rental on the market, but no net increase in total housing. Meanwhile, that transaction removed one house from the pool for sale to first-home buyers. So a lot of investment just shuffled properties from owner-occupied to rental without growing the housing stock. In fact, investors often compete with first-time buyers in the market, and with tax advantages like negative gearing and capital gains discounts, investors frequently won out. This pushed prices up and made it harder for renters to become owners, keeping them renting longer – a bit of a vicious cycle.
Where new housing was built, it didn’t always align with the greatest needs. For instance, in the mid-2010s we built lots of apartments in city centers (targeting young professionals and students), which did ease rental pressures for those groups somewhat. But we built far fewer affordable family homes or low-rise units in middle-ring suburbs where many working families needed to rent. Also, some of those new high-rises were marketed to overseas investors and had high rents. So while the skyline filled with cranes, the impact on affordable rental supply was limited. Outside the big cities, many regional areas added very little new housing for years (until the recent push due to COVID migration).
There’s also land-use planning to consider. Restrictive zoning and community opposition can slow down or block new housing projects. In cities like Sydney, getting approval to build apartments in an area of single-family homes is notoriously hard. Slower supply growth in desirable areas meant more people chasing what was already built. Some economists point out that Australia’s housing construction per capita hasn’t been terrible – we do build a lot – but we haven’t built enough in the inner and middle suburbs of major cities, where demand growth was most concentrated. A lot of building happened on outer fringes (new estates far from city centres) where many renters might not want to live due to distance from jobs and amenities.
By the time we entered the late 2010s, supply was lagging behind demand by a significant margin. Vacancy rates – a good indicator of balance – were consistently low (hovering around 2% or less in many markets). A healthy market might have 3%+ vacancy giving renters choice; we were below that, meaning landlords had the upper hand. In some regional cities and towns, vacancy was near zero, a dire situation for anyone needing a rental.
It’s important to note that this supply issue is not just about not building enough homes in total, but also about who owns them and how they’re used. By the 2020s, a significant number of dwellings in Australia were not being fully utilised – some were vacant investments, some were short-term Airbnb rentals, etc. For example, the rise of Airbnb and similar platforms in the 2010s took some homes that would’ve been long-term rentals off the market, especially in touristy areas. Those owners found it more profitable to rent to vacationers or leave properties empty for part of the year than to have a full-time tenant. It wasn’t the biggest factor nation-wide, but in tight markets every little bit counts.
So, summing up: we ended up with a mismatch. Demand kept rising (more people needing homes) while supply growth was slow and skewed. We relied heavily on private investors to provide rentals, and while they bought properties eagerly (driven by good returns and tax breaks), they didn’t necessarily add new dwellings where needed. The government’s retreat from building houses left a gap for the private sector that wasn’t filled at the lower end of the market. Year after year, this under-supply accumulated like a deficit. When something big (like COVID) hit, the leeway was gone – there was no slack in the system. And so when demand suddenly spiked again, there was nowhere near enough inventory, pushing us into crisis territory.
Policy Missteps That Added Pressure
A crucial piece of the puzzle is government policy. Various policies over the years inadvertently made the rental situation more precarious. I already hinted at some: tax settings and housing programs. Let’s break down a few major ones:
Tax incentives for investors: Australia’s generous negative gearing and capital gains tax discount made property an extremely attractive investment. This was great for those who could afford to buy extra properties, but it had side effects. These incentives arguably encouraged speculative buying – people buying for capital gain potential more than rental yield – which drove up prices. As prices rose, it locked more people out of buying, leaving them renting. It also meant the rental market’s health became tied to investor whims. When times are good, investors pile in (keeping rental supply up), but if they get nervous or hit with higher costs, they can exit, pulling supply away. We saw an example of that: when interest rates rose or regulations tightened, some investors sold off properties, which might then be bought by owner-occupiers (thus one less rental). So, while the intention of those tax policies was to increase housing investment, one could argue they over-stimulated buying without guaranteeing new building. Additionally, these policies cost the government money in lost tax revenue, money that could have been spent on affordable housing initiatives. The debate around these policies is political dynamite – proposals to wind back negative gearing have been hotly contested. But there’s little doubt they shaped the market dynamic that led to high prices and a rental sector dominated by small landlords, not large-scale stable providers.
Decline in social housing funding: As mentioned, a big policy shift was the move from supply-side support (government building homes) to demand-side support (rent assistance) in the late 20th century. Year after year through the 90s, 2000s, 2010s, the stock of public housing barely grew or even shrank relative to population. Public housing used to be a pressure valve – if the private market was too pricey or tight, more people could get into public housing. But with so few spots available now (waiting lists in some states are 5-10+ years for those eligible), that valve is almost closed. So those people remain competing in private rentals, often in rental stress. It’s a bit like if the hospital system cut beds and told everyone to get private healthcare – many would still end up in the ER, which would overflow. Similarly, cutting back social housing meant the private rental “ER” overflowed with cases it can’t handle well (like very low-income households who really need subsidised rent). The policy idea was that rent assistance (CRA) would help those folks, but CRA values didn’t keep up with actual rent increases, diminishing its effectiveness over time.
Tenancy law and renter protections: Historically, tenancy law in Australia favoured flexibility for landlords – easy to evict, short leases, etc. In a world where most rented briefly, that was accepted. But as renting became long-term, those laws left renters quite vulnerable. Until very recently, in most places a landlord could evict a tenant without giving a reason at the end of a lease term (no-grounds termination). This made renters less likely to assert their rights or ask for repairs, for fear of not having their lease renewed. Frequent moves also add costs and stress (moving trucks, reconnecting utilities, kids switching schools). So why is this a crisis factor? Because lack of stability is part of what makes the current situation so painful. If rents are high but you know you can stay put for years, it’s easier to manage than high rents and fear of being asked to leave or priced out every 6-12 months. Some states have improved these laws now (no-grounds evictions are being scrapped in a couple of states, and longer notice periods introduced), but these changes only began late in the 2010s and early 2020s, a bit late to prevent the stress that has built up. In short, policy didn’t earlier recognise renting as a legitimate long-term tenure that deserved similar security to owning, which contributed to renters’ precarious position.
Planning and infrastructure policies: For years, urban development policy didn’t fully anticipate the housing need. Zoning remained restrictive in many job-rich areas, and public transport/infrastructure investment didn’t open up new land for housing as quickly as population growth demanded. This is more of a structural policy issue. There were attempts – like the 2000s targets for building along transport corridors, or recent encouragement of higher density around train stations – but overall, development was still often slowed by local processes and opposition. Some analysts say Australian cities have a lot of “missing middle” housing that never got built due to planning rules (like townhouses, mid-rise apartments in suburbs), which could have housed renters who now are forced either into high-rise or far-flung suburbs. Fixing planning is complex, but it’s fair to say it contributed to limited supply in certain high-demand locations.
Other missteps or gaps: Consider short-term rentals again. Governments were caught off guard by the rapid growth of Airbnb. For too long, there were no rules, so in tourist-heavy markets landlords converted long-term rentals to short-term holiday lets (because they could earn more per night). Only recently did some places like NSW impose limits (like max 180 days a year if it’s not your primary residence in certain areas). This was a bit of a policy oversight that allowed an emerging issue to exacerbate rental availability problems in those communities (imagine a small coastal town where a big chunk of rentals turned into Airbnbs – locals would suddenly struggle to find homes, which indeed happened in some coastal regions during the pandemic as city folks bought up holiday houses).
Add all these together – it’s like a recipe where each ingredient adds a bit of pressure. By the end of the 2010s, we had: many people needing rentals, not enough rentals being built (especially affordable ones), and policies that inadvertently made it easy to speculate on housing but harder for renters to gain ground. Renters themselves had little bargaining power in terms of lease conditions or rent hikes. Everything was primed for a problem. All it needed was a spark… which came in the 2020s with COVID.
The COVID-19 Shock and Aftermath
The COVID-19 pandemic was an unprecedented shock, and it had some weird, seesaw effects on the rental market – ultimately pushing us from an already stressed situation into a full-blown crisis. Let’s recount what happened around 2020 and after, because it’s key to why right now things are so bad.
When COVID first hit Australia in early 2020, international borders closed. This was huge because, as we discussed, much of the rental demand comes from overseas migration (students, workers, etc.). Overnight, that demand vanished. In fact, some temporary visa holders even left the country. Suddenly, inner-city apartments, especially in Melbourne and Sydney which were reliant on students and tourists, were empty. Vacancy rates in the CBDs shot up dramatically – like from 2% to 10% in Melbourne at one point. Rents in those areas fell; landlords were doing unheard-of things like offering free rent weeks or lowering the price (imagine that!). For tenants in those specific markets, it was briefly a renter’s market.
However, at the very same time, another phenomenon occurred: people’s preferences shifted due to lockdowns and work-from-home. Many renters (who could afford to) said, “I want more space or a backyard if I’m going to be stuck at home.” This led some to move out of share-houses or their parents’ homes to form separate households, and others to leave inner-city units for houses in outer suburbs or regional towns. We saw a mini exodus to the regions: vacancies in coastal and lifestyle regions got snapped up. So while city unit rents dropped, regional rents climbed, and vacancy in those tree-change areas went towards zero. Another thing: household size dropped. That means, countrywide, thousands of new rentals were required simply because people who used to live together split into two homes (maybe two roommates each got their own place, etc.).
So the initial pandemic year had these cross-currents. But the real crunch came as we moved into late 2021 and 2022. Australia’s economy bounced back, and importantly, borders reopened. Now, not only did the usual flow of migrants and international students resume, it actually surged beyond normal in 2022-2023, possibly because of pent-up demand and new government policies. For instance, a record number of international students arrived once restrictions lifted. At the same time, all those extra households formed during the pandemic didn’t recombine – they were still out there occupying dwellings. And many people who had left the big cities for country towns decided to stay, meaning the rentals they vacated in the city got filled by others and no new supply was freed up.
However, during the pandemic, something else had happened: rental supply shrank. How? Some landlords sold properties during the uncertain times – especially those city apartments that weren’t yielding good rent in 2020. Who bought them? In many cases, first-home buyers swooped in, encouraged by low interest rates and government incentives at the time. That’s great for those buyers, but note, each such sale turned a rental into an owner-occupied home, i.e. one less rental on the market. Additionally, virtually no new apartment projects were started in 2020 (developers hit pause), meaning a gap in the future pipeline. So by 2022, the rental stock was actually a bit diminished in some areas compared to 2019.
Then 2022 also brought rapidly rising interest rates as the Reserve Bank fought inflation. Suddenly, landlords’ mortgages got more expensive, and some decided to pass on those costs via higher rents or again, sell properties (further tightening rental supply). And new investors were more hesitant to buy given higher borrowing costs, so the usual balancing mechanism (more investors buying when rents go up) was weaker.
All these forces collided. The result: by late 2022 and into 2023, nearly every part of Australia saw record-tight rental markets. Vacancy rates plunged to around 1% nationally, the lowest on record. In some cities like Adelaide and Perth, it was under 0.5% – effectively nothing available. This meant desperate competition for any rental listing. I personally went to an inspection where 50 people showed up for a modest unit. People started offering above asking rent, offering 6 months’ rent in advance, or other sweeteners, just to secure a place. Stories emerged of people applying to dozens of places without luck, even with good references and income.
And of course, rents skyrocketed. Over 2022, median rents jumped by double digits percentage-wise in many cities. This was the sharpest rise in about 15 years. It has pushed many to the brink. Lower-income renters were completely priced out of many areas; even middle-class renters felt the pain of an extra $50, $100, or more a week in rent. For someone already budgeting, that kind of jump can mean having to move further away or settle for inferior housing. In extreme cases, people ended up in cars or tents because they just couldn’t find anything they could afford.So COVID’s legacy on the rental market is that it acted as an accelerant. It took a strained system and gave it a big jolt: first a shake-up, then a surge. All the latent issues (low public housing, investor-driven supply, high demand) were laid bare. If COVID hadn’t happened, maybe the crisis would have come anyway but more gradually. Instead, we got a whiplash – a brief dip followed by a severe crunch.
Importantly, the political and social attention to renting changed as a result. For perhaps the first time in recent memory, renting became a top national issue, with debates on rent caps, emergency measures, and housing reforms front and center. In the past, homeowners dominated policy thinking (since they are a larger voting group), but with such a significant part of the population renting and hurting, ignoring the rental crisis was no longer tenable.
So, to sum up the journey: we had years of growing demand and insufficient responsive supply, policies that favoured treating housing as an investment vehicle, and then an extraordinary event (COVID) that reconfigured the market and ultimately poured fuel on the fire of demand without adequate supply. Mix in low vacancy, rising interest rates, and you have the rental crisis we are in today – characterised by record low availability and high rents that outpace incomes. It’s been a long road to get here, and as we’ve seen, each phase added a layer of complexity.
Welcome to the Rent Crisis
Australia’s current rental crisis isn’t a mystery that appeared out of nowhere – it’s the result of a long build-up of forces that we’ve just walked through. We ended up here because demand for rentals kept rising – due to population growth and social changes – while housing supply didn’t keep up, especially not the affordable kind in places where people needed it. At the same time, policies and market dynamics favoured investors and existing homeowners, often at the expense of renters’ affordability and security. And finally, the shock of COVID-19 and its aftermath supercharged an already tight situation into a full-blown emergency.
Understanding these causes matters because it guides what solutions we pursue. If high demand is part of the issue, we might look at how to moderate it or meet it (for example, through building more housing or managing migration intakes with housing capacity in mind). If lack of supply is crucial, then reforms in construction, planning, and funding for social housing are clearly needed. The policy missteps suggest we should reconsider some settings like tax incentives and tenant laws. And the COVID episode taught us to build resilience – having a bit of slack in the system (like higher vacancy or more public housing units relative to population) could absorb shocks more readily.
For those of us living this crisis – struggling to find a place or to pay the rent – it can be frustrating to hear about long-term causes when relief is needed now. But this journey shows that to fix it, we need both immediate and longer-term actions. Immediately, maybe some emergency measures (like temporary rent relief or limits on increases) can help. But long-term, we need to change the trajectory: build more homes, make renting more secure, and balance the investor-driven nature of the market with the needs of the community.
I hope this explanation of how we ended up in a rental crisis has been clear. It’s a complex situation, but in essence it’s about imbalance – too many people chasing too few homes, and the rules of the game not doing enough to protect the renter. The crisis is extremely challenging, but it was not unforeseeable. By learning from the path we took to get here, Australia can make smarter choices going forward to ensure history doesn’t repeat itself in an even worse way. The next step is translating this understanding into action – which is a topic for another day (and indeed, many are actively debating solutions right now). For now, at least we’ve answered the question: “How did we end up here?” And armed with that knowledge, we can push for the changes needed to create a fairer rental market for everyone.
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