Australia’s housing market, particularly in cities like Melbourne and Sydney, remains at the centre of a perfect storm: rising demand, limited supply, and skyrocketing rents. Adding to the pressure is the influx of international students, many of whom compete in an already crowded rental market. With recent changes to visa rules aimed at reducing the number of incoming international students, the big question is whether this will ease the burden on the housing crisis or merely scratch the surface.
The latest data from the Australian Bureau of Statistics (ABS) highlights the ongoing strain on housing. As of June 2024, the Consumer Price Index (CPI) showed a 1.0% rise for the quarter and a 3.8% increase over the past year. Housing costs climbed 1.1% in the quarter and by 5.2% over the year. While inflation has impacted multiple sectors—including food, clothing, and health—housing remains one of the most pressing concerns, as rising rents continue to place financial pressure on both local and international residents. More recent reports have indicated some easing in rental prices, but the overall situation remains challenging for renters across the country.
Snapshot of the Rental Market
The rental market, particularly in capital cities, has seen notable shifts in recent months. Over the 30 days leading up to August 12, 2024, capital city rents fell by an average of 0.5%, marking the largest declines since the early days of the pandemic. Sydney saw a 1.0% drop in combined rents, lowering the average weekly rent to $829, while Melbourne experienced a 0.6% decline, bringing the average rent down to $632 per week. Brisbane and Perth followed suit with small declines (SQM). These figures suggest that while rents are softening in some areas, the overall rental market remains tight, as indicated by a national rental vacancy rate of just 1.3%.
The question remains: are international students really the key drivers behind the housing crisis, and will visa cuts make a significant impact?
International Students and Housing Pressure
International students are a significant part of Australia’s housing market. Many of them opt for private rental accommodation rather than on-campus housing, which has seen limited expansion despite the growing demand. Data shows that over 116,000 international students live in detached houses, 51,000 in townhouses, and another 173,000 in apartments across Australia (MacroBusiness). With only 14,000 students housed on campus, the competition for rentals—especially in university precincts—has intensified.
The housing pressure created by international students is exacerbated by the fact that a higher percentage of students live alone compared to their local peers. While only 4.2% of Australians under 40 live alone, this figure rises to 7.2% for international students (ABS). Although this might appear to be a small difference, when considering the large numbers of international students, the impact on housing availability becomes apparent.
One of the challenges is the diversity of living conditions. While 25,000 international students live in homes with two or more spare bedrooms, a more significant number—68,000—are in overcrowded conditions with no spare bedrooms, and 35,000 students live in homes that require at least two additional bedrooms (ABS). This disparity illustrates how student housing preferences and the shortage of affordable options are straining the market.
Inflation and Rent: No Easy Fixes
As inflation pushes housing costs higher, rental markets have become even more competitive. The ABS reports that housing costs rose by 5.2% over the last year. Meanwhile, CPI inflation rose to 3.8% in the June 2024 quarter, the first increase since December 2022. This uptick in inflation is particularly worrying for renters, as higher living costs further exacerbate their financial strain.
Interestingly, while inflation has been rising, some cities are beginning to see a slight dip in rents. Melbourne’s rental market has softened, with a 0.6% decrease in asking rents over the past month. Sydney, traditionally one of the most expensive cities, saw a more pronounced decline of 1.0% (SQM Research). Despite these reductions, rental vacancies in Australia remain low, signalling that demand continues to outpace supply.
Inflation remains a key concern, with the CPI rising by 3.8% in the June quarter of 2024, while the ABS Monthly CPI Indicator showed a 3.5% increase for July 2024. Looking ahead, Westpac forecasts a gradual easing of inflation over the next four quarters, projecting annual rates of 2.9%, 2.6%, 2.4%, and 2.3%. Economist Stephen Koukoulas has noted that the Reserve Bank of Australia (RBA) now faces a significant risk of undershooting its inflation target, suggesting it’s possible to envision inflation falling as low as 1% in 2025.
Visa Cuts: Will They Help?
The Australian government’s decision to cut visas for international students aims to reduce pressure on the housing market by limiting demand. However, this approach raises concerns about the broader economic impact. International students contribute billions to the Australian economy each year, not just through tuition fees but also through spending in various sectors such as hospitality and retail. Reducing their numbers could have unintended consequences, particularly for regions heavily reliant on student spending.
More critically, visa cuts fail to address the root issue: the chronic shortage of affordable student accommodation. Of the 205,000 international students currently in Australia, only around 40,000 have access to on-campus housing (MacroBusiness). This leaves the remaining majority to compete in an already squeezed private rental market, contributing to rising rents and housing shortages.
The bigger question is whether the visa cuts will significantly impact the housing market. While fewer students may ease some pressure, the broader problem is a lack of housing supply. Even if visa numbers are reduced, the demand for affordable housing from local populations remains strong. The long-term solution requires more investment in infrastructure, particularly student accommodation, and better urban planning to meet the needs of both local and international populations.
Local Renters Still Feeling the Squeeze
It’s important to recognise that international students are just one part of Australia’s broader housing crisis. Local renters, particularly in cities like Sydney and Melbourne, continue to feel the strain of rising rents and limited housing options. Over the past year, rents have increased sharply in many areas, driven by a combination of low vacancy rates and high demand.
According to recent reports, rental vacancy rates in capital cities remain stubbornly low, with Sydney’s rate at 1.7% and Melbourne’s at 1.5%. In contrast, Canberra has seen a slight rise in its vacancy rate to 2.2%, while Perth and Adelaide have some of the tightest markets with rates as low as 0.7%. These figures suggest that while rents are dipping slightly in some areas, the broader housing crisis remains unresolved.
A Way Forward: Beyond Visa Cuts
Ultimately, visa cuts may offer some short-term relief, but they are not a comprehensive solution to Australia’s housing crisis. A more sustainable approach would involve increasing the supply of affordable housing, particularly student accommodation. Universities and private developers could be incentivised to build more co-living spaces, which provide affordable, communal housing options for students.
For local renters, addressing the housing crisis requires a multi-pronged strategy that includes better urban planning, investment in public housing, and policies that encourage the development of affordable rental properties. Until these broader issues are tackled, Australia’s rental market is likely to remain tight, with both local and international renters feeling the squeeze.
Sources: Australian Bureau of Statistics, MacroBusiness, SQM Research, Department of Education, CoreLogic
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