Building new market-rate homes improves affordability by lowering rents on most existing homes, new research released today 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% 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% 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% 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% of rentals became more affordable with age but there was an exception among the cheapest 10% of rentals which actually got more expensive over time - possibly due to renovations, underpricing, or elevated competition at this level of the market.
Therefore, while building new market-rate homes brings down prices for most renters, it must be accompanied by, and not replace, targeted lower-income interventions such as social housing or rent assistance.
"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."
