Renting out a spare room could help ease Australia’s rental crisis

Australia is currently facing a severe shortage of rental housing, with rental vacancy rates reaching record lows of 0.8 per cent around the country. This has caused rents to rapidly increase by 14.6 per cent over the past year across the combined capital cities, further exacerbating the challenges many are facing amid a cost-of-living crisis.

With the Chinese government recently announcing that it will no longer recognise the degrees of students who have studied entirely online, Australia could see a rush of international students seeking housing in inner cities and regional centres near universities.

Materials delays and labour shortages are already constraining the housing-construction pipeline, with apartments taking more than 19 months to build, according to the ABS. Fortunately, Australia already has plenty of housing that is already built, we just need to make it available for students.   

Australia’s empty bedrooms

According to the latest Census, there are more than 12 million spare bedrooms in Australia. These are rooms that are suitable for someone to live in, but are often used as a guest bedroom, an office to work from home or for storage. The abundance of spare bedrooms partly reflects preferences during COVID for extra space and separation from others, but longer-term factors such as shrinking household sizes combined with large houses compound the issue. The preference for large houses has led to Australia having the third highest proportion of detached housing as a percentage of residential dwelling stock, according to OECD data. 

For those who could rent out a spare room in their home, the extra income could help with the current cost-of-living crisis. If this measure helps add to supply in the tight rental market it could also help to ease the pace of growth in rental prices.

Using data from flatmates.com.au, we can see the potential value of renting out a bedroom in suburbs popular with international students near Group of Eight (G8) universities.  

The United Kingdom’s Rent a Room Scheme lets residents earn up to £7500 ($AU 13,073) per year tax-free by renting out fully-furnished accommodation in a home. Key to this scheme is that the tax exemption is automatic and tax forms don’t need to be filled out, reducing the administrative burden.

Policymakers can make it easier to rent out a spare bedroom

A similar provision could be established in Australia, which would make it easier to rent out an extra room. Some local adjustments would need to be made, such as ensuring compatibility with the existing capital gains tax exemption on the principal place of residence.

Rental contracts can be confusing and difficult to set up. Different states and territories require different paperwork. Meanwhile, distinguishing between boarding, rooming, renting, co-renting and sub-letting further disincentivises a family from renting out a spare room. There would be merit in simplifying this process to enable more people to offer their spare room, while ensuring that renters are protected and not exploited.

Although these changes would reduce the administrative burden, the option to rent out a spare bedroom is not front of mind for many families.

Universities have a role to play 

Universities benefit greatly from the contributions of international students. They have a role in ensuring that students get the most from their study experience – including by helping them to find suitable accommodation.

One way that universities can do this is by spreading the message. Universities have extensive alumni networks. Many of these alumni live in communities around the universities and often have spare bedrooms. Curtin University has already reached out to its local community and alumni network. Other universities could follow suit.

Universities could also consider advertising more widely. This marketing material could be introduced to demonstrate the benefits of renting out a spare bedroom, particularly at a time when many households are struggling with the cost of living.

There are big benefits from renting out spare rooms

If people start renting out their spare bedrooms, it will introduce new housing supply into the market, acting to reduce rental prices. The economic and social benefits of more affordable rental housing include:

1. Easing cost-of-living pressure for struggling Australians. Bringing more housing supply into the market is paramount to reducing rapidly rising rent prices; 
2. Helping people live closer to where they work, reducing commute times and helping people to access better jobs, which improves productivity; and
3. Encouraging international students to come to Australia. Education is Australia’s fourth largest export, worth $27 billion, and these students spend money in our cities, many of which are still recovering from the COVID-19 pandemic.  

Making it easier to rent out a spare bedroom could help to address some of Australia’s immediate housing affordability and supply challenges, but it’s not the only solution to lifetime housing affordability and security. There are many other structural issues that policymakers also need to address to ensure long-term change that will improve housing affordability. 

You can read more on the trends and policy implications of Australia's housing affordability crisis here.