Locked out: How property prices fuel rent increases
As the dream of home ownership slips further out of reach, new research analyzing two decades of housing trends in Melbourne reveals the nexus between increasing housing unaffordability and higher rents.
"Without intervention, Melbourne, along with other major cities, could see an increasing number of renters locked out of home ownership, further exacerbating rental market pressures," said Dr. Mustapha Bangura from the University of Technology Sydney (UTS).
The study tracks Melbourne's housing market from 2000 to 2021 and the dynamic relationship between renting and home ownership. It was authored by Dr. Bangura and Professor Chyi Lin Lee from UNSW Sydney, and in the Journal of Housing and the Built Environment.
"We used affordability indices to examine the nexus between renting and buying a residential property in 31 local government areas (LGAs) in greater Melbourne. We found that as home deposits become increasingly unaffordable, more households are forced to rent for longer," said Dr. Bangura.
"This trend is creating a surge in demand for rental properties, making affordability a challenge not just for would-be home buyers but also for tenants struggling to keep up with soaring rents. Household rent expenditure on all dwelling types has consistently increased from 2006 to date.
"The affordability crisis is a two-pronged problem," he said. "On one hand, stagnant wage growth combined with skyrocketing property prices has pushed up the deposit requirement for a median-priced home.
"On the other hand, this inaccessibility to home ownership has a ripple effect on the rental market. More households are renting for longer, increasing demand and pushing rents higher."
The study found that Melburnians are spending more than 30% of their income on rent—a benchmark that indicates financial stress.
The findings will be of interest to policymakers and developers as it suggests a greater focus on build-to-rent developments could help supply rental properties tailored to affordability needs.
The researchers also note that an increase in government subsidies for first-home buyers could provide long-term relief by shifting renters into home ownership.
"The Victorian Government's First Home Owner Grant, which provides financial aid to first-time buyers, has been identified as a key factor in improving rental affordability," Dr. Bangura said.
"By increasing budgetary allocations to first home buyer grants, policymakers could help more renters transition into home ownership, ultimately relieving pressure on the rental market.
"However, if concerns in the rental markets are overlooked, it will escalate an already overwhelming affordability situation."
More information: Mustapha Bangura et al, Exploring the nexus between entry affordability and rent affordability in the private rental market of greater Melbourne, Journal of Housing and the Built Environment (2025).
Provided by University of Technology, Sydney
