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ABC News

National

RMIT ABC Fact Check

Adam Bandt says rents are rising six times faster than wages. Is that correct?

Adam Bandt Fact Check ABS Ben Phillips Greens SQM Research CoreLogic PropTrack Australia CPI

Greens leader Adam Bandt says rents are rising six times faster than wages. (ABC News: Mark Moore)

The claim

A year after its election victory, the Albanese government is yet to deliver on a key promise: to establish the Housing Australia Future Fund as a means of delivering more affordable public housing.

Under Labor's proposed legislation, returns on the $10 billion investment fund — capped at $500 million per year — would be spent on maintaining and building social housing.

With the Coalition ruling out support for the bill, the government needs the backing of the Greens in the Senate to pass the legislation.

However, Greens leader Adam Bandt raised a number of concerns about the bill in an interview with the ABC's 7:30 program on April 26, including what he said was its lack of support for renters.

"Labor's got no plan for renters," Mr Bandt said.

"Rents are rising six times faster than wages."

Is that correct? Has the increase in the cost of renting outstripped wage growth by six times?

The verdict

Mr Bandt's claim is overstated.

Experts told Fact Check there were two key measures of rents: "asking rents" and the rent component within the consumer price index (CPI) published by the Australian Bureau of Statistics (ABS).

Asking rents refers to changes in advertised rents for new leases, while the CPI measures changes in rents for all housing stock.

Experts told Fact Check that the latter best reflected changes in rents across the whole market.

By this measure, rents in Australia increased by 4 per cent in the year to December 2022.

Meanwhile, wages grew a little slower — by 3.3 per cent (as measured by the ABS) over the same period.

Experts noted there were a number of reputable data providers when it came to assessing asking rents.

However, due to differences in samples and methodology, the results varied, highlighting the limits of using this measure to draw conclusions about the broader market.

Over the year to December 2022, these providers reported advertised rent rises ranging from 6.7 per cent to 25.1 per cent; that is, between 2 and 7.6 times the rise in wages over the same period.

So, while a small percentage of renters — those essentially taking on new leases, estimated to represent 2 to 3 per cent of the market each month — may have experienced rental increases in the order of six times the growth in wages, this was not typical across the entire market.

Nevertheless, experts said asking rents offered a glimpse of where the market may be heading.

Wages growth in Australia

Experts contacted by Fact Check suggested the wage price index, which is published by the ABS, was the best measure for comparing wage movements over time.

As Fact Check has previously written, this key benchmark shows changes in average hourly wage and salary costs and is not influenced by changes in the quality or quantity of work performed or the shifting structure of the jobs market over time.

Capturing the cost of rent

A spokesman for Mr Bandt told Fact Check his claim was based on SQM Research's weekly rents report.

SQM's data tracks changes in "asking rents" across capital cities and for regional markets.

But Ben Phillips, an associate professor at Australian National University's Centre for Social Research and Methods, told Fact Check that asking rents data only accounted for changes in the cost of new leases which affect a small portion of the overall renter cohort.

"This measure tends to provide useful information regarding the future direction and magnitude of rent growth but is not necessarily a good measure of current market rents for all renters," he noted.

According to the ABS, approximately 2 to 3 per cent of all properties change tenants each month.

Joey Moloney, an economist and senior associate at the Grattan Institute, agreed with Mr Phillips, telling Fact Check that when it came to building a picture for all rents, the "authoritative source" was the rents component of the CPI.

Mr Phillips explained that CPI data reported across a wide sample of all rental properties, including both public and private dwellings, "better reflects the experience of rents across the whole market".

Given Mr Bandt's claim about rental rises did not distinguish between new leases and the overall market, Fact Check has relied chiefly on CPI data to assess the claim.

However, asking rents are also considered in this analysis.

Some measures of rent increases only track new leases. (AAP: Mick Tsikas)

The regional divide

Bruce Bradbury, an associate professor working in the University of New South Wales' Social Policy Research Centre, added a caveat to the headline CPI data: namely, that it only tracks rents in Australia's capital cities.

Meanwhile, the wage price index accounts for movements in wages across the entire nation.

In April, however, the ABS published an information paper "presenting insights into the rental market based on a new large dataset used to measure rents in the Consumer Price Index".

Unlike the general CPI data, these figures include a measure for regional Australia, excluding public housing, for the period July 2018 to February 2023.

Experts agreed that the data offered valuable insight when it came to understanding changes in the regional market as well for the private rental sector.

However, Dr Bradbury noted that recent ABS data showed similar price rises in the cities and regions, leaving the general CPI data as the "the best indicator for changes in rents for all renters."

Establishing a timeline

Mr Bandt claimed rents were rising six times faster than wages "right now".

However, while quarterly CPI data was available through to March 2023, quarterly WPI data was only available until December 2022 at the time Mr Bandt made his claim.

Similarly, most asking rents data providers publish their reports quarterly, the most recent also being for the March quarter. SQM Research, meanwhile, publishes its data weekly.

In an email, Mr Bandt's spokesperson said the claim was based on a comparison between "this month's" asking rents data and last year's wage data.

However, in order to make a like-for-like comparison, Fact Check has assessed the claim over the year to December 2022.

Rents and wages data both have a lag. (ABC News: John Gunn)

What the ABS data shows

Rents in Australia's capital cities increased, on average, by 4 per cent in 2022.

This exceeded the growth in wages, which increased by 3.3 per cent across the nation.

As the chart below illustrates, this ended a three-year period of slow and negative annual growth in rents between December 2019 and 2021.

Mr Moloney noted that the slowdown (and fall in December 2020) could mostly be attributed to pandemic-related border closures, combined with an easing of rental costs in some cities in the latter half of 2019 due to a "reasonably healthy supply pipeline".

When public housing is excluded, the ABS data shows slightly steeper climbs in rents in both the capitals and the regions.

On this measure, capital city rents climbed 5 per cent while those in the regions increased by 6.3 per cent over the year to December 2022 — 1.5 times or 1.9 times that of wage growth respectively.

What about asking rents?

Experts told Fact Check there were a number of reputable research firms that published data on asking rents including Domain, CoreLogic, SQM Research and PropTrack.

However, these groups published varied results over the same period.

For example, Domain's December quarter report showed asking rents for houses in the capital cities had increased by 14.6 per cent over the year to December 2022 while advertised rents for units were 17.6 per cent higher.

Meanwhile the regions recorded increases of 11.1 per cent for houses and 7.9 per cent for units.

CoreLogic's combined national figure for "all dwellings" showed increases of 10.2 per cent, while REA Group's PropTrack recorded a 6.7 per cent rise in national "median advertised rental prices" over the same period.

SQM Research, on the other hand, recorded an increase of 17.5 per cent on its national combined score for all types of dwellings for the year to December 20.

In the capital cities alone — the figure Mr Bandt pointed to as the basis for his claim — SQM's data showed a much more significant jump of 25.1 per cent.

Based on these figures, advertised rents increased between 2 and 7.6 times that of wage growth (3.3 per cent).

Taken as an average across these five datasets (13.8 per cent), asking rents increased 4.2 times the growth in wages.

PropTrack economist Angus Moore said these differences were mostly explained by the groups' different methodologies.

For example, PropTrack's data relies on a "median" price for all advertised rents, while CoreLogic's measure makes adjustments for compositional changes in the market, he said.

Mr Moloney noted that there were also some differences in the sample bases used by the groups, further highlighting the limitations of the measure in assessing the rental market as a whole.

Where to from here?

Mr Phillips said the increases in asking rents nevertheless gave an insight into where the market may be heading in the future.

Similarly, Mr Moloney said it was a likely sign "there might be more pain to come".

"Asking rents are a leading indicator of CPI rents," he said.

"Eventually, everyone rolls off a lease and can face a ‘rent-increasing' event — whether that's signing a new lease at the same place or finding a new rental."

Indeed, the latest CPI data showed a further 0.9 per cent growth in the March quarter, bringing annual growth to a high of 4.9 per cent in public and private rents across the capital cities.

"Rental prices have recorded the largest annual rise since 2010, reflecting strong demand amid low vacancy rates across the country," according to the ABS.

Meanwhile, the latest WPI data — published after Mr Bandt made his claim — showed quarterly wage growth increased at a similar rate (0.8 per cent) in the March quarter, lifting annual growth to 3.7 per cent.

Similarly, asking rents data for the March quarter indicated further likely cost increases on the horizon.

Domain's report recorded an annual increase of 13 per cent for houses and 22.2 per cent for units in the capital cities representing "the longest stretch of continuous rental price growth" in the capital cities.

In the regions, growth was as little slower at 7.5 per cent for houses and 10.3 per cent for units.

"Asking rents are at historical highs across the combined capitals and regionals," the report noted.

CoreLogic also noted asking rents had "reaccelerated" in the March quarter with a 10.1 per cent rise in national rents over the year to March while REA's PropTrack put that figure at 11.1 per cent over the same period.

SQM's latest report put average national growth at 10.1 per cent over the year to May 12.

Principal researcher: Sonam Thomas

Sources

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