Most of us have enjoyed the freedom and relaxation of a camping trip to the beach or the bush. But would you feel as free and relaxed if you couldn’t pack your tent up at the end of the holiday and return to a real home?
Sadly, an increasing number of Australians are resorting to tents for permanent shelter rather than for recreation use as our housing affordability crisis deepens.
For the past two years I have been warning that tent cities – such as those that emerged around the United States during that country’s surge in homelessness in the 1980s – will become a feature of our urban landscape in the absence of concerted government, business, and community efforts to provide affordable rental accommodation.
I take no pleasure in the confirmation of my prediction as I note the continuing population boom in tent settlements in parklands and under the shelter of bridges across Australian cities and towns. Many of the inhabitants of these settlements — some with young families — are employed. Their inability to secure a proper roof over their heads is not a reflection on them, it is just that we don’t have enough affordable solutions available in the rental marketplace.
How Tent Cities Became Prevalent In The USA – The Parallels
To understand what will happen in Australia in the next 6 months, let’s look at the parallels with the conditions that spawned them in the USA in the 1980s.
The economic environment in the USA during that time was characterised by recession, high inflation, and increasing unemployment rates. The Federal Government also began cutting funding for social affordable social housing.
Fast forward to Australia 2024 and we can tick the similarity boxes.
✔️High inflation: Evidenced by the ongoing interest rate rises to slow down the economy.
✔️Government cutting funding for affordable housing. The most successful scheme, the National Affordability Rental Scheme (NRAS) is ending in 2026. In total, 27,012 properties remain in the scheme nationally. By 2026 the last of the subsidised properties will have exited.
✔️Recession: – Economic recession in the USA led to job losses, and this fueled their tent city crisis. Today Australia is facing a different kind of recession: not an economic recession, but an unprecedented housing recession … receding of rental stock. But in terms of housing the outcome is much the same: more people without roofs over their heads.
On the opposite side of the economic environment ledger, there is just one big difference between the USA then, and Australia now. That relates to unemployment: Unlike the 1980s in America, rather than high unemployment, in Australia today we have a labour shortage.
To increase our labour supply, Australia is planning to add more than 700,000 immigrants to our population between the 2022 and 2024 financial years. This will have a significant impact on our housing supply.
Sadly, our economic environment currently presents a unique set of circumstances, and a distinct and shocking difference as to who will be living in the tent cities of 2024 and beyond, if we don’t take immediate action.
Rental Supply Will Continue To Diminish
According to Proptrack, there are 55 percent fewer rental properties in Australia since March 2020. This is partly because COVID scared a lot of investors; also, they wanted to cash in on the housing boom, selling to owner occupiers.
The housing boom allowed investors to offload low yield, negatively geared properties, which represented underperforming assets.
That was the first wave of rental supply exiting the market.
The second wave of rental supply exiting the market is happening right now, but the effects of this won’t really be felt until September 2024 and beyond.
This second wave involves a number of additional factors:
1) Residential home builders collapsing because they are unable to fulfill contracts due to rising input costs, supply chain delays and labour shortages.
2) Reduced new rental builds due to the massive increase in construction costs, leading to lower returns, and the exit of many qualified tradespeople due to uncertainty in their industry.
3) An unprecedented increase in population with immigration.
4) The mass exit of Mum and Dad investors who are negatively geared or have low yielding properties. They are going to cash out and sell to owner-occupiers. They won’t be able to stand the combined pressure of continuing interest rate rises, banks asking for principal and interest on investment loans, and the cost-of-living increases.
The Solutions We Have Been Ignoring And Why
In 2009 I recognised that Australia was heading towards a crisis, well before ‘Housing Crisis’ became a staple media headline. Hence, I formed the Future Housing Task Force to build demonstration models of affordable housing solutions.
When I built Australia’s first Smarter Smaller Home ™ I had to build it in a shed to comply with council regulations. I had over 5,000 people walk through the first “demonstration model”. They were from a broad range of people from governments, builders, developers, private investors through to the general public.
I received lots of compliments but there was very little practical application as a result.
In 2017, when I was interviewed by Channel 7’s Better Homes and Gardens, Joanna Griggs asked a very important question, which is even more significant today. She asked, ‘So if we think differently about how we live, we’ve got the solutions for affordable housing right before our very eyes?”.
Correct. And since then, through our Smarter Smaller Homes ™ and a range of other housing models suitable for rental accommodation, we have produced provable solutions for affordable housing.
Yet, even though we have created build to rent products with strong investor appeal and have helped to add more than 1,000 rentals to the Brisbane market over those years, the uptake compared to what can be delivered has been minimal.
So why have we been ignoring these Smarter Smaller solutions?
For two reasons:
1) We find it hard to let go of our memory of architecture.
As a society, we love the idea of tree lined suburbs filled with large, four and five bedroom homes, and we tolerate the notion of apartment buildings and townhouses. But an affordable, Smarter Smaller home? Many Australia’s don’t want to entertain the idea.
2) We have pre-conceived judgements about people according the to the type of accommodation they live in
What do I mean by that?
I have been consistently sharing that Smarter Smaller spaces such as newly constructed Rooming Houses are an excellent solution for the fastest growing household sector in Australia. That being single person households. According to the most recent Census data there was a 17.2 per cent increase in the number of lone person households from 2016 to 2021.
The tenant demographic of people who occupy these build to rent Brisbane Rooming Houses we acquire for our investors are single people who have jobs that contribute to the society we live in. They are the barista that serves you your coffee in the morning, the nurse in your local hospital, the fireman, the person who serves you at the grocery store, and more.
In some regions in Queensland, as rents rise, essential workers are looking for second jobs, just to keep on top of the rent. Here is an ABC news article that highlights the problem.
Yet there are still some people in our community who begrudge the existence of Rooming Houses in their suburbs, holding on to outdated judgements about the type of people who rent these properties.
It is no secret that quickly adding supply to the rental market is urgent, and that private capital is desperately needed to add supply to market.
Rental affordability, financial viability for investors, and speed of stock to the rental market are all important considerations.
My team and I have a range of solutions for a range of investors. From property investors who want high yield (8% or better), high social impact investments to fast track their portfolio through to institutional investors and family offices who want to be able to make a larger scale impact.
Please contact us if you are interested in investing in high yield, high growth property which will help solve the affordable rental crisis.