Renters experiencing more financial pressure than home owners

A new report by CommBank iQ — a joint venture between Commonwealth Bank of Australia (CBA) and data science and artificial intelligence company Quantium — has revealed that Australians aged 30–34 and people renting their accommodation are feeling the most pressure from the rising cost of living.

While Australia is in the grips of high inflation and interest rate increases, it isn’t mortgagors who are feeling the most pain from cost-of-living expenses, according to a new report, but those renting.

The Cost of Living Insights Report analysed aggregated and de-identified payments data from 7 million CBA customers (believed to be Australia’s largest consumer payments dataset) to track and understand spending trends.

According to the report, discretionary expenditure in real terms remains elevated following the easing of COVID-19 restrictions — particularly for travel, services, and food — but spending on other essential items is either falling or is stagnant, as people reprioritise their spending.

The data found that Australians may be tightening their purses to manage the rising cost of living, but aren’t yet willing to sacrifice how they spend their time. For example, travel and accommodation spending was up 39 per cent in January to March when compared to the same period last year.

Eating out and food delivery also rose, up 8.5 per cent in real terms.

The report found that while some customers are pulling cash from savings to afford these treats, others are reducing spending in other areas (such as clothes or goods shopping).

However, despite mortgagors feeling the impact of 11 cash rate rises in a year, it’s the sharp escalation in rents, which has been hitting younger Australians (who typically have less disposable income) the most.

The report’s ‘Cost of Living Pressure Indicator’ — which measures changes in an individual’s total and discretionary spending — has risen sharply and is positioned to increase further, the report authors noted.

CommBank iQ’s head of innovation and analytics Wade Tubman commented: “Putting our expenditure under the microscope shows we’re responding to the increased cost of living in diverse and sometimes unexpected ways.

“What we’re seeing is a continued COVID-19 rebound effect, with consumers catching up on the experiences that they missed out on during the pandemic. It seems counterintuitive that at a time of increased cost-of-living pressures, consumers are choosing to boost their discretionary spending.”

Mr Tubman continued: “Our Cost of Living Pressure Indicator shows renters are experiencing more pressure than home owners in general.

“Despite the increased financial burden on some mortgage holders, a little under half of all home owners are mortgage-free and a third of those with a mortgage have savings buffers of two years or more,” suggesting that this cohort is raising the average stats for all home owners.

Indeed, the report revealed that Australians aged 25–29 (typically the largest cohort to rent and begin home ownership) have been making the largest reductions in expenditure compared to other age groups.

While 18–24-year-olds continue to spend (in real terms), they typically are living at home rather than renting or paying a mortgage. However, these young adults are still choosing to go out less even if, when they do, they’re spending more on average than last year, according to the report.

But it is those aged 30–34 who are experiencing the most pressure, generating the highest cost-of-living pressure score of all age groups.

Those living in the outer south-west, the inner-city, and eastern suburbs of Sydney, for example, are experiencing the highest pressure of all contingents in Sydney, which is perhaps a reflection of the fact that there is a high concentration of younger people and renters in those areas.

However, the report showed that after the Reserve Bank of Australia started its rate-rising cycle in May 2022, there was a corresponding rise in the Cost of Living Pressure Score.

“The cost of living pressure score has started to rapidly pick up since Christmas and certainly the trends are that financial pressure will continue to rise,” Mr Tubman said.

“The Reserve Bank’s decision to increase the cash rate by 0.25 per cent to 3.85 per cent on 2 May will add to these pressures,” noting that the lagged effect of higher interest rates and mortgage costs is expected to further increase cost-of-living pressures and soften consumer demand in the coming months.”

Interestingly, older Australians have been increasing their expenditure. Annual spending by those aged over 35 has increased by 7.7 per cent, almost double the 3.4 per cent increase in spending by those under 35.

‘Empty nesters’ are spending the most of any cohort, potentially buoyed by having smaller mortgages (if any) and a wish to travel. For example, the report found that those over the age of 65 had increased their spending by more than 10 per cent between the first three months of 2022 and 2023.

[Related: Budget slammed for not addressing the housing crisis]