Exploring the nexus between entry affordability and rent affordability in the private rental market of greater Melbourne

Abstract

Recognising the discrepancies in the features of dwelling types, we adopted a submarket model using quarterly panel data for 31 local government areas (LGAs) of Greater Melbourne, spanning March 2000 to December 2021, and documented the following findings. First, challenging entry affordability is causing a deterioration of rent affordability in the private rental housing market. As entry to the market has become a difficult venture for prospective homebuyers, the ultimate result is an expansion of the private rental market. Second, as the supply of vacant dwellings with multiple bedrooms increases, the rent of dwellings with fewer bedrooms would likely drop. Third, the more the state government offers the first homeowner grant, the greater the chances of improving rent affordability in the private rental market. These results could inform the decisions of various stakeholders of the private rental housing market including policymakers, residential property developers, and investors in terms of their activities in the rental market.