July 8, 2025 • 12 mins
In this episode of the Friends with Money podcast, we explore the housing crisis in Australia and how renting out spare bedrooms could help provide more affordable housing.
Money's Ryan Johnson joins host Managing editor, Vanessa Walker, to discuss the housing shortfall in Australia. They talk about the factors contributing to the crisis, including lagging construction and policies that favour investors over first-time buyers. Ryan explains how the 13 million unused spare bedrooms across Australia are an untapped resource that could help ease supply constraints. We learn who owns these spare rooms, the barriers keeping them from renting them out, and how policies could incentivise making better use of this latent housing supply.
Key Takeaways:
2:30 - There is a 250,000 home shortfall between housing needed and current supply. Construction isn't keeping pace with demand.
5:15 - Older Australians own most of the 13 million unused spare bedrooms, often in large, empty nest homes.
8:00 - Emotional barriers like safety concerns and desire for privacy have kept seniors from renting out rooms.
10:30 - Clarification on how capital gains tax applies when renting out part of a home.
13:00 - How rental income affects pensions - calls for policy tweaks to incentivise room rentals.
15:30 - Bank now counts rental income toward mortgage eligibility.
To learn more about Australia's housing crisis and the spare bedroom solution, be sure to listen to this insightful episode!
#friendswithmoney #vanessawalker #ryanjohnson #housingcrisis #sparebedroom
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.
Speaker 2 (00:13):
Hi, welcome to the Friends of Money podcast. I'm the
managing editor, Vanessa Walker.
Speaker 1 (00:19):
Now.
Speaker 2 (00:19):
Our cover story in the July issue is on the
nation's spare bedrooms, both as a possible solution to Australia's
housing crisis and a way to bring in more money
for homeowners, particularly retirees. I'm here with our journalist Ryan
Johnson to get to the bottom of this thorny issue.
Speaker 1 (00:38):
Hi.
Speaker 3 (00:38):
Ryan, Hey Vanessa, it's great to be here. Thanks for
having me.
Speaker 2 (00:41):
Alrighty, let's start with the housing crisis. Sum it up
for us. What is the shortfall between people needing homes
and the housing stop that Australia currently has.
Speaker 3 (00:53):
Yeah, well, thanks Vanessa. There are so many reasons for
the housing crisis we're currently in. The big one is
that property prices just outpaced wages for decades and that's
just continuing to exacerbate the problem. But there are many
other issues with the housing crisis and facets of the
housing crisis. So there's delays in the building process, there's
(01:15):
population growth, there's a lack of social housing. There's the
fact that a lot of the demand is isolated to
just a few cities across Australia, and some argue that
some policy incentives, like the big infamous negative gearing, incentivize
investors over at the expense of first home buyers. Ultimately,
(01:37):
all of this just leads to a shortage of affordable
housing and delays in building new ones. So really to
address this, I suppose Labor has set out a target
of one point two million homes to build one point
two million homes by twenty twenty nine. But the problem
is that if they build at current rates, we could
fall short of that number by two hundred and fifty
(01:59):
thousand homes. So we may have a while to go
before the housing crisis gets any better.
Speaker 2 (02:06):
Right, A quarter of million homes that we haven't built
that we're going to need, That's right. So the usual
mooted solution to the shortfall is to leave a supply
and demand. How does the government propose to do that?
Speaker 3 (02:19):
So when Labor won the recent federal election, they brought
with a host of different policy changes to do with housing.
So on the supply front, there's the big one, the
fact that they want to build one point two million homes.
But there's also other measures such as they want to
build up the prefabrication industry, which we covered in an
issue before. Also they're just doing fresh incentives for the
(02:42):
construction industry, for employers in the construction industry and apprentices.
But there's also some on the demand side. So for buyers,
there's the help to Buy scheme and that's got an
eight hundred million dollar boost. There's the First Home Guarantee
which was extended to allow five percent deposits with no
lenders mortgage insurance, which is typically a big cost if
(03:03):
you have to face that. But again, all these policies,
whether they're good or bad, they just take time and
it takes time for them to flow through the system.
And the fact is that the crisis is here right now.
Speaker 2 (03:16):
So there is a housing supply channel that we may
be overlooking. Can you take us through that?
Speaker 3 (03:23):
Yeah, So recent ABS data shows is about seven point
four million homes that have more bedrooms than they need,
and over a million of them have more than three
spare bedrooms. In total, that's over thirteen million spare bedrooms
that are just sitting empty. And when we're looking at,
I suppose boosting supply and tempering demand. We have supply
(03:47):
that's already there, an immediate source that's already built, already livable,
and it's just sitting empty.
Speaker 2 (03:54):
Okay, So let's get down to the people issue. Who
owns these spare rooms they be found?
Speaker 3 (04:01):
Yeah, so older Australians mostly are. It's I guess the
legacy of the Australian dream. That big four x two
house on the corner block close to schools, that's sold
with the idea of family in mind, for a growing
family in mind. But as we all know, when the
kids get older, that becomes the empty nest. More than
eighty percent of Australians over sixty five own their home,
(04:24):
and three quarters of those homes have three or more bedrooms.
Of those, eighty four percent aren't being used for housing.
So that's just a huge resource. It's just crying out
to be used and rented out.
Speaker 2 (04:37):
So what does this cohort of people perceive as the
barriers to renting out their spare rooms.
Speaker 3 (04:43):
Well, emotions are probably the biggest one. Most Australians just
aren't used to the idea of just having someone share
their house. You don't want some weird person living with you,
and you think of the dangers. Imagine if it's your parents,
would you want some stranger living with them. So there
are real concerns around safety, especially for older homeowners. But
(05:05):
equally there's other concerns about living alone in a big house.
So many older Australians are asset rich, cash poor, they're
also desperately lonely. One quarter of them live in poverty.
So if you can rent out a space safely and
to friendly people who could help out around the house,
it could help solve both of those problems.
Speaker 2 (05:27):
Very true. Now, another fear of people, aside from having
strangers in their home, is if they rent out a
room they'll get hit with capital gains tax when they
sell their home. Is there some truth to this and
please take us through What is capital gains tax?
Speaker 3 (05:44):
Yeah? So capital gains tax is quite a confusing thing
for most people to get their head around. But in
a sense, even though many people may not realize this,
that it's not a separate tax in itself, it's just
an extension of your income tax. So really what it's
SEMP is is a tax you pay on the profit
if you sell something it's like like your home for
(06:05):
more than you paid for it, but if it's your
main home, you don't pay any capital gains tax at all.
The difference is is that if you start to rent
out a part of your home, like a spare bedroom,
you might lose part of that exemption. So there are
a few important details when it comes to capital gains tax.
And I'll jump in here and just say I definitely
(06:25):
recommend talking to your advisor about this because it gets
very confusing and the devil truly is in the detail
when it comes to tax. But there are a few
important details. So you only pay capital gains tax on
the part of the home you rent it out, and
plus if you've owned it for more than twelve months,
you get a fifty percent discount on that game. So
there are even situations where capital gains tax might not
(06:47):
apply at all. So if it's a casual domestic arrangement
like a border and they share meals and you pay
for the bills, the electricity bills or the gas bills
that they might contribute to, there's usually no capital gains
impact at all. But if the room's advertised least and
the tenant pays for their own groceries and bills. Then
(07:09):
that's counted as generating income. It's a commercial, a formal agreement,
and that's where capital gains tax can start to apply.
Saying that though, like, there are a lot of situations
where homeowners can still come out ahead even when you
sell and you get hit with that capital gains tax.
I mean, you might get hit with a considerable amount,
(07:31):
but you also need to keep in mind that it's
a long term gain and in the sense that you've
also just earned a steady rental income over the period
you've owned it, and you can also claim some expenses
along with that as well, So you get the benefit
of I suppose having that investment if you like. And yeah, often,
(07:52):
as I outline in the cover story, as I go
and I crunch the numbers in the article, that extra
money outweighs any tax you end up paying.
Speaker 2 (07:59):
Like, all right, good to know. The takeaway really for
people is that if you want to generate income, it's
economically advantageous to set up as a boarding situation.
Speaker 3 (08:10):
Yeah, that's exactly right, like a domestic arrangement, no capital
gains tax, and yeah, you get the benefits as well
as not paying any tax. At the end of it.
Speaker 2 (08:20):
Good one. Now, I know that with a lot of
these older people over sixty five, they do worry about
whether their income affects their pension. So let's dive into that.
How does renting out a room affect a person's pension.
Speaker 3 (08:35):
Yes, so for many older Australians that is their biggest
fear that earning income, even a small amount, will reduce
their pension. So there's good reason for this. I mean,
most types of income counts in your income test, and
that includes rental income, both commercially and whether or not
it's just a domestic arrangement. So both of those situations
(08:55):
you end up getting countered towards you income test. Again,
and the rules are more nuanced than they appear. Income
generated from domestic arrangements like borders and lodgers are assessed
at reduce rates for pensions. So even better, like if
the border is a close family member, the rent may
not be counted as income at all. And if there's
(09:17):
a mortgage on your home still, interest payments can be
partially offset by the rent that you get. So in
the article, I also talk to an academic called Lyndall
Bryant from Queensland, University of Technology, and she's calling for
changes to the work bonus scheme. Now, this scheme is
basically to encourage pensioners to continue to work as they age,
(09:38):
just to continue to keep their mind sharp, you know,
contribute and basically that scheme allows them to continue to
work earn money without it affecting their pensions. Now she
wants that policy to be broadened out to include rental
income to be considered as work. At the moment it's not,
but she's calling on the government for that change. And
(09:59):
I suppose this, but in centivize pensions to rent out
their home, that their spare rooms even more.
Speaker 2 (10:04):
All right, So some policy tweaks would work well in
the situation.
Speaker 3 (10:07):
Exactly right. And there's a small change really and it
could definitely incentivize older people to rent out their spare bedrooms.
Speaker 2 (10:14):
All right, Great, now I believe you have a bonus
inclusion about spare bedrooms for those seeking a mortgage with
the Commonwealth Bank. Let's sign off on that. Good news.
Speaker 3 (10:24):
Yeah, So the Commonwealth Bank, Australia's largest lender, has allowed
border income to count towards a loan application. So importantly,
this is income generated from domestic arrangements like I was
saying before, borders lodges your adult child. So the change
could increase borrowing power up to fifty thousand dollars, opening
the door for home buyers who might have fallen short
(10:46):
of meeting the bank's requirements beforehand. Now it is limited
to only one room per property, and it's one hundred
and fifty dollars per week captap, So it's capped at
one hundred and fifty dollars per week. But let's say
you're a first home buyer in Queens then, right, and
you're looking at a two better apartment somewhere. You can
now pay zero stamp duty, you can access the first
home buias ground, and you can count up to six
(11:07):
hundred dollars a month towards your mortgage just by wrenching
out your spare bedroom. It also applies to refinances, so
say a single parent could now count one hundred and
fifty dollars per week in board pay by their adult kids,
and this just increases their chance to secure a cheaper
rate when they're refinanced.
Speaker 2 (11:26):
Okay, that's great news, Ryan, thank you so much for
talking to us about this important issue. To go deeper
into it, pick up a copy of the July issue
of Money. Thanks so much, Ryan, We appreciate it.
Speaker 3 (11:37):
Yeah, thanks for having me.
Speaker 1 (11:40):
Thanks for listening to the Friends with Money podcast. For credible,
independent and easy to understand financial commentary, visit moneymag dot
com dot au. Please remember that the views and opinions
expressed in this podcast are general in nature, and further
independent advice and research based on your personal circumstances should
(12:00):
be sought before making an investment decision.
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.
Speaker 2 (00:13):
Hi, welcome to the Friends of Money podcast. I'm the
managing editor, Vanessa Walker.
Speaker 1 (00:19):
Now.
Speaker 2 (00:19):
Our cover story in the July issue is on the
nation's spare bedrooms, both as a possible solution to Australia's
housing crisis and a way to bring in more money
for homeowners, particularly retirees. I'm here with our journalist Ryan
Johnson to get to the bottom of this thorny issue.
Speaker 1 (00:38):
Hi.
Speaker 3 (00:38):
Ryan, Hey Vanessa, it's great to be here. Thanks for
having me.
Speaker 2 (00:41):
Alrighty, let's start with the housing crisis. Sum it up
for us. What is the shortfall between people needing homes
and the housing stop that Australia currently has.
Speaker 3 (00:53):
Yeah, well, thanks Vanessa. There are so many reasons for
the housing crisis we're currently in. The big one is
that property prices just outpaced wages for decades and that's
just continuing to exacerbate the problem. But there are many
other issues with the housing crisis and facets of the
housing crisis. So there's delays in the building process, there's
(01:15):
population growth, there's a lack of social housing. There's the
fact that a lot of the demand is isolated to
just a few cities across Australia, and some argue that
some policy incentives, like the big infamous negative gearing, incentivize
investors over at the expense of first home buyers. Ultimately,
(01:37):
all of this just leads to a shortage of affordable
housing and delays in building new ones. So really to
address this, I suppose Labor has set out a target
of one point two million homes to build one point
two million homes by twenty twenty nine. But the problem
is that if they build at current rates, we could
fall short of that number by two hundred and fifty
(01:59):
thousand homes. So we may have a while to go
before the housing crisis gets any better.
Speaker 2 (02:06):
Right, A quarter of million homes that we haven't built
that we're going to need, That's right. So the usual
mooted solution to the shortfall is to leave a supply
and demand. How does the government propose to do that?
Speaker 3 (02:19):
So when Labor won the recent federal election, they brought
with a host of different policy changes to do with housing.
So on the supply front, there's the big one, the
fact that they want to build one point two million homes.
But there's also other measures such as they want to
build up the prefabrication industry, which we covered in an
issue before. Also they're just doing fresh incentives for the
(02:42):
construction industry, for employers in the construction industry and apprentices.
But there's also some on the demand side. So for buyers,
there's the help to Buy scheme and that's got an
eight hundred million dollar boost. There's the First Home Guarantee
which was extended to allow five percent deposits with no
lenders mortgage insurance, which is typically a big cost if
(03:03):
you have to face that. But again, all these policies,
whether they're good or bad, they just take time and
it takes time for them to flow through the system.
And the fact is that the crisis is here right now.
Speaker 2 (03:16):
So there is a housing supply channel that we may
be overlooking. Can you take us through that?
Speaker 3 (03:23):
Yeah, So recent ABS data shows is about seven point
four million homes that have more bedrooms than they need,
and over a million of them have more than three
spare bedrooms. In total, that's over thirteen million spare bedrooms
that are just sitting empty. And when we're looking at,
I suppose boosting supply and tempering demand. We have supply
(03:47):
that's already there, an immediate source that's already built, already livable,
and it's just sitting empty.
Speaker 2 (03:54):
Okay, So let's get down to the people issue. Who
owns these spare rooms they be found?
Speaker 3 (04:01):
Yeah, so older Australians mostly are. It's I guess the
legacy of the Australian dream. That big four x two
house on the corner block close to schools, that's sold
with the idea of family in mind, for a growing
family in mind. But as we all know, when the
kids get older, that becomes the empty nest. More than
eighty percent of Australians over sixty five own their home,
(04:24):
and three quarters of those homes have three or more bedrooms.
Of those, eighty four percent aren't being used for housing.
So that's just a huge resource. It's just crying out
to be used and rented out.
Speaker 2 (04:37):
So what does this cohort of people perceive as the
barriers to renting out their spare rooms.
Speaker 3 (04:43):
Well, emotions are probably the biggest one. Most Australians just
aren't used to the idea of just having someone share
their house. You don't want some weird person living with you,
and you think of the dangers. Imagine if it's your parents,
would you want some stranger living with them. So there
are real concerns around safety, especially for older homeowners. But
(05:05):
equally there's other concerns about living alone in a big house.
So many older Australians are asset rich, cash poor, they're
also desperately lonely. One quarter of them live in poverty.
So if you can rent out a space safely and
to friendly people who could help out around the house,
it could help solve both of those problems.
Speaker 2 (05:27):
Very true. Now, another fear of people, aside from having
strangers in their home, is if they rent out a
room they'll get hit with capital gains tax when they
sell their home. Is there some truth to this and
please take us through What is capital gains tax?
Speaker 3 (05:44):
Yeah? So capital gains tax is quite a confusing thing
for most people to get their head around. But in
a sense, even though many people may not realize this,
that it's not a separate tax in itself, it's just
an extension of your income tax. So really what it's
SEMP is is a tax you pay on the profit
if you sell something it's like like your home for
(06:05):
more than you paid for it, but if it's your
main home, you don't pay any capital gains tax at all.
The difference is is that if you start to rent
out a part of your home, like a spare bedroom,
you might lose part of that exemption. So there are
a few important details when it comes to capital gains tax.
And I'll jump in here and just say I definitely
(06:25):
recommend talking to your advisor about this because it gets
very confusing and the devil truly is in the detail
when it comes to tax. But there are a few
important details. So you only pay capital gains tax on
the part of the home you rent it out, and
plus if you've owned it for more than twelve months,
you get a fifty percent discount on that game. So
there are even situations where capital gains tax might not
(06:47):
apply at all. So if it's a casual domestic arrangement
like a border and they share meals and you pay
for the bills, the electricity bills or the gas bills
that they might contribute to, there's usually no capital gains
impact at all. But if the room's advertised least and
the tenant pays for their own groceries and bills. Then
(07:09):
that's counted as generating income. It's a commercial, a formal agreement,
and that's where capital gains tax can start to apply.
Saying that though, like, there are a lot of situations
where homeowners can still come out ahead even when you
sell and you get hit with that capital gains tax.
I mean, you might get hit with a considerable amount,
(07:31):
but you also need to keep in mind that it's
a long term gain and in the sense that you've
also just earned a steady rental income over the period
you've owned it, and you can also claim some expenses
along with that as well, So you get the benefit
of I suppose having that investment if you like. And yeah, often,
(07:52):
as I outline in the cover story, as I go
and I crunch the numbers in the article, that extra
money outweighs any tax you end up paying.
Speaker 2 (07:59):
Like, all right, good to know. The takeaway really for
people is that if you want to generate income, it's
economically advantageous to set up as a boarding situation.
Speaker 3 (08:10):
Yeah, that's exactly right, like a domestic arrangement, no capital
gains tax, and yeah, you get the benefits as well
as not paying any tax. At the end of it.
Speaker 2 (08:20):
Good one. Now, I know that with a lot of
these older people over sixty five, they do worry about
whether their income affects their pension. So let's dive into that.
How does renting out a room affect a person's pension.
Speaker 3 (08:35):
Yes, so for many older Australians that is their biggest
fear that earning income, even a small amount, will reduce
their pension. So there's good reason for this. I mean,
most types of income counts in your income test, and
that includes rental income, both commercially and whether or not
it's just a domestic arrangement. So both of those situations
(08:55):
you end up getting countered towards you income test. Again,
and the rules are more nuanced than they appear. Income
generated from domestic arrangements like borders and lodgers are assessed
at reduce rates for pensions. So even better, like if
the border is a close family member, the rent may
not be counted as income at all. And if there's
(09:17):
a mortgage on your home still, interest payments can be
partially offset by the rent that you get. So in
the article, I also talk to an academic called Lyndall
Bryant from Queensland, University of Technology, and she's calling for
changes to the work bonus scheme. Now, this scheme is
basically to encourage pensioners to continue to work as they age,
(09:38):
just to continue to keep their mind sharp, you know,
contribute and basically that scheme allows them to continue to
work earn money without it affecting their pensions. Now she
wants that policy to be broadened out to include rental
income to be considered as work. At the moment it's not,
but she's calling on the government for that change. And
(09:59):
I suppose this, but in centivize pensions to rent out
their home, that their spare rooms even more.
Speaker 2 (10:04):
All right, So some policy tweaks would work well in
the situation.
Speaker 3 (10:07):
Exactly right. And there's a small change really and it
could definitely incentivize older people to rent out their spare bedrooms.
Speaker 2 (10:14):
All right, Great, now I believe you have a bonus
inclusion about spare bedrooms for those seeking a mortgage with
the Commonwealth Bank. Let's sign off on that. Good news.
Speaker 3 (10:24):
Yeah, So the Commonwealth Bank, Australia's largest lender, has allowed
border income to count towards a loan application. So importantly,
this is income generated from domestic arrangements like I was
saying before, borders lodges your adult child. So the change
could increase borrowing power up to fifty thousand dollars, opening
the door for home buyers who might have fallen short
(10:46):
of meeting the bank's requirements beforehand. Now it is limited
to only one room per property, and it's one hundred
and fifty dollars per week captap, So it's capped at
one hundred and fifty dollars per week. But let's say
you're a first home buyer in Queens then, right, and
you're looking at a two better apartment somewhere. You can
now pay zero stamp duty, you can access the first
home buias ground, and you can count up to six
(11:07):
hundred dollars a month towards your mortgage just by wrenching
out your spare bedroom. It also applies to refinances, so
say a single parent could now count one hundred and
fifty dollars per week in board pay by their adult kids,
and this just increases their chance to secure a cheaper
rate when they're refinanced.
Speaker 2 (11:26):
Okay, that's great news, Ryan, thank you so much for
talking to us about this important issue. To go deeper
into it, pick up a copy of the July issue
of Money. Thanks so much, Ryan, We appreciate it.
Speaker 3 (11:37):
Yeah, thanks for having me.
Speaker 1 (11:40):
Thanks for listening to the Friends with Money podcast. For credible,
independent and easy to understand financial commentary, visit moneymag dot
com dot au. Please remember that the views and opinions
expressed in this podcast are general in nature, and further
independent advice and research based on your personal circumstances should
(12:00):
be sought before making an investment decision.
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