Building new market-rate homes improves affordability by lowering rents on most existing homes, new research released by e61 Institute has found.
The analysis of 9.4 million rental transactions from 2007 to 2022 found that, on average, rentals became 3.6 per cent cheaper for every decade they aged, becoming more affordable to most renters over time in a process known as filtering.
Rentals became cheaper more quickly in areas where more new housing was built, such as Parramatta in Sydney where they got almost 11 per cent cheaper over the 2010s as they aged.
The process was slower – or even reversed – in areas lagging on home building such as Sydney’s northern beaches where rentals got almost 3 per cent more expensive over the same period.
“As properties age they depreciate due to wear-and-tear and also become less desirable compared to newer homes that often have more modern features” said Dr Nick Garvin, Research Manager at e61 Institute.
“Both of these channels can lower the price of older homes and free them up for lower-income households.
“While some people oppose new developments that do not directly target lower-income households, our research shows that building new market-rate rentals does in fact benefit the majority of renters over time.”
The research found 90 per cent of rentals became more affordable with age but there was an exception among the cheapest 10 per cent of rentals which actually got more expensive over time – possibly due to renovations, underpricing, or elevated competition at this level of the market, the report said.
“Given the overall estimated speed that rents decline with age, and the fact that rents do not decline with age at the bottom of the income distribution, market-rate supply does not appear capable of completely replacing targeted lower-income interventions such as social housing or rent assistance,” said Dr Garvin.
“Instead, market-rate supply eases the burden of these targeted policies, by generating affordability at other parts of the income distribution.”
It comes as housing completions data from the Australia Bureau of Statistics in the March quarter of 2024 found that 41,329 homes were completed across Australia, a decrease from 45,643 in the December 2023 quarter. This represents a seasonally-adjusted quarterly fall of 9.5 per cent and is the second lowest quarter of housing completions in the last 10 years.
To reach our national housing target of 1.2 million new homes by 2029 Australia needs to be averaging 60,000 homes each quarter over the next five years.