A surprising fact about household incomes over the past two decades is that the median, or typical, income for a renter household has grown faster than for households that own their home – either outright or with a mortgage.
It’s a little hard to make out the relativities from the above chart, so the one below instead shows renter incomes relative to the highest-income group: owner-occupiers with a mortgage.
Here, the trend is clearer: while there is volatility from survey to survey, the median renter household now earns more relative to a owner-occupier with a mortgage than was true two decades ago.
That seems surprising. Why would renter households see faster income growth?
The answer: that’s probably not what’s happening. Instead, what is going on here is that the composition of who rents has changed over the past two decades: it is not necessarily that renter household have seen faster income growth on average,[1] it’s that higher-income households are now more likely to be renters.
Among higher-income households – say the top 40% of households – the share who rent has been trending up over the past two decades. This has been happening everywhere; it is not unique to particular cities or regions.
This is a consequence of declining homeownership among younger households. Two decades ago, more young high-income households moved into homeownership, meaning the remaining renter households were, on average, lower income.
While that selection effect still occurs – younger households that do move in to homeownership are disproportionately higher income (as the chart below shows) – not as many young households move into homeownership as used to be the case.
This shift towards renters being a higher-income group has many implications. Higher-income households can afford to pay more in rent; absent sufficient availability, this will put pressure on lower income renter households – a dynamic we are seeing at the moment. Higher-income renters will also have different housing preferences, which will mean the types of homes in the rental stock may need to change and evolve.
Given housing affordability remains very challenging, and homeownership difficult for many households, this trend is unlikely to change anytime soon.
[1] Though, because the data I use from the ABS Survey of Income and Housing is not longitudinal – ie does not follow the same household over time – I can’t rule that hypothesis in or out.
