Like most seeking a place to rent in Sydney, Tanakit Phaopin is used to large queues. With vacancy rates hovering currently around 1.7% in Australia's largest city, and 1.3% nationally, rental inspections often draw dozens of aspiring tenants, whose entrances are staggered to manage the volume.
"Every one lines up and they let four people in at a time," the university student and part-time swimming instructor said at a recent inspection in Sydney's Inner West, which was more subdued due to his visit being on a weekday. "It's so stressful, there's lots of competition."
It's a challenging task securing affordable housing in Australia. Owing to near record low vacancy rates, rents in the country are growing at around an 9% annualized rate -- the fastest pace since 2008, according to research published this month from the Commonwealth Bank of Australia (CBA).
Weekly asking-sales prices for properties nationally -- combining units and houses -- have increased 90% over the past decade, according to research firm SQM. In June, the median house price for Australia's territorial capital cities combined was 1.1 million Australian dollars ($740,000), according to property agency Domain, with Sydney being the most expensive at AU$1.6 million.
Tanakit, 21, and his partner who works in childcare are currently sharing a house with another family while hunting for their own. They've submitted 12 applications during their two-month search for something within their budget.
Renters are trying to adapt. The CBA found that rocketing rents have led more people to live in shared housing arrangements or with relatives in order to "economize."
Some 5% of Australians over the age of 15 live in a share house, up from 4% in 2020, an increase of 200,000 people, the research found. At the same time, there's been a sharp drop in the share of the population living with just their partner.
"The rapid increase in dwelling and rent prices could be delaying when couples move out together, instead choosing to remain at home or in share houses," the CBA noted, adding the trend had the potential to impact family formation.
As dwelling sizes increase and population pressures ease, there are some signs things are cooling. August figures from real estate analysis firm CoreLogic show the growth of rental prices nationally slowed to 0.1% in July, a stark contrast to the 39.7% increase over the past five years.
But upward pressure still remains as the country of 26 million grapples with a severe housing shortfall.
A combination of long-term tax and housing policies, construction constraints and labor force shortages, population growth, zoning issues and changing demographics have led demand for housing to far outstrip supply, experts say.
"The root of this problem lies in decades of policy decisions and economic factors that have inflated housing costs beyond the reach of many Australians," said Richard Tucker, co-leader of the HOME Strategic Research and Innovation Centre at Deakin University in Melbourne.
The issue is shaping up as a key political battleground ahead of a national election expected next year.
Australian Prime Minister Anthony Albanese has pledged AU$32 billion for its Homes for Australia plan, aiming to build 1.2 million homes by 2029 and to roll out an array of other supportive measures.
His Labor party has also vowed to halve net immigration by next financial year, clamping down on international students, a move that's drawn criticism from members of the education sector who say foreign students are being unfairly blamed for structural issues.
Politically, Labor has been sandwiched. On its left flank, the Greens say its agenda doesn't go far enough. They want limits on capital gains concessions and tax arrangements by which investors can offset property losses against income tax. On Labor's right, the leader of the opposition coalition Peter Dutton has proposed a tougher crackdown on immigration.
Although unlikely bedfellows, the Greens and the conservatives have effectively teamed up in the Senate to delay, for different reasons, Labor bills to set up a shared equity scheme to help first-time home buyers and boost build-to-rent developments with tax incentives.
Build-to-rent (BTR) projects, slow to take off in Australia, have been touted as one part of a solution. A 2022 report by Ernst and Young valued the BTR sector at AU$16.8 billion -- about 0.2% of the total value of the residential housing -- compared with 5.4% in the U.K and 12% in the U.S.
But while momentum is increasing, particularly in the city of Melbourne, progress has faced challenges, with commencements for BTR units falling 19% in fiscal 2024 amid high borrowing costs and policy uncertainty, according to Oxford Economics.
Michael Dziegielewski, development principal at global real estate company Hines, which has invested in BTR developments in Australia, said he expected some of the cost pressures to ease in 2025, and the proposed government incentives to boost supply.
He said some investors had been deterred by a perception that BTR was less lucrative than building for sale but as a “low-volatility and high-stability asset,” the developments were the “best among all asset classes” in their risk-return profile.
“In the short to medium term, we expect to see more public and private consortiums working together to address Australia’s housing shortage on a wider scale,” he said.
Rental stock in Australia is mostly owned by small-scale investors, with property forming a pillar of wealth generation and retirement, said Michael Fotheringham, head of the Australian Housing and Urban Research Institute
"Seventy percent of those properties are owned by an investor who owns just one investment property, 90% by investors who own one or two, and a trailing percentage of those households are owned by investors that have what you might start to think of as a portfolio," he said.
"We haven't had that institutional investment in housing supply up till now because of that mum and dad investor model."
The government's plans face an uphill climb. Dwelling approvals and commencements slumped to their lowest level in 13 years in the past financial year, according to the ABS, as higher interest rates, expensive building materials and labor costs weigh on the construction industry, particularly apartment developments.
Scott Kuru, founder of Freedom Property Investors, said the government needed to cut red tape and introduce incentives for construction to direct investors toward new dwellings and away from existing ones.
"If we can make it affordable for Australians to build a brand new property by providing some type of an incentive -- either a cash incentive, a cash bonus, a rebate, or something like that -- we could have record numbers of homes under construction," he said.
Such measures, however, were being hamstrung by what he called the "villainization" of property investors.
Roughly a third of households in Australia rent, a third are paying off mortgages and a third own their home outright.
The housing landscape is fueling a broader debate about a generational divide, with those older more likely to own their homes and benefit from rising prices, while newer mortgage holders with less equity struggle under higher interest rates.
Renters, meanwhile, are on average spending 30% of their income on their lease, according to research firm Suburbtrends, stifling their capacity to save for a deposit.
Long-term, a lack of affordable housing risks worsening health and employment outcomes, widening social inequality and entrenching intergenerational poverty, said Tucker. More than 40% of recent first-time home buyers relied on support from families with their deposit, according to a survey by the Centre for Equitable Housing.
Labor shortages remain an enduring problem in tackling the broader housing shortage. The construction industry estimates that 90,000 new workers will be needed to meet the government's goals. However, importing more workers to replace those lost during the pandemic has been "quite challenging and quite politicized," said Fotheringham.
"The argument that the migrants are driving up house prices is really simplistic and not actually terribly helpful," he said.
As a "cottage industry" with lots of "churn" when owners evict tenants to flip properties and take advantage of capital gains, Australia's private rental market remains "immature," Fotheringham said.
While there had been a "sprinkle" of reforms across the country to boost protections for renters, the market in many ways still operates under outdated ideas of being "transitional" rather than a long-term option.
"It's seen as a short-term thing, something you do while you're at uni -- you move into a share house, learn how to cook stir fry, do laundry and get a bit of independence and then you settle down somewhere -- but really it's quite different to that now," he said.
