Whatever the result of the New South Wales election on March 25, rising housing stress is a problem the new state government will have to confront.

Soaring rents and an extraordinary lack of rental vacancies are intensifying housing stress in Sydney and elsewhere. Many low-income households are spending well over 30% of their income on housing costs.

The numbers of people seeking help are pushing social housing and homelessness systems to the brink.

But how did these sectors end up in such a vulnerable place? And why are some of their problems worse than in other states?

Population has outpaced social housing supply

The stock of social housing in Australia has hardly changed in 25 years. It has fallen further and further behind the supply needed to keep pace with population growth.

Social housing accounted for more than 6% of occupied dwellings in 1996. By 2021, it was barely above 4%. Rather than reflecting active policy - such as large-scale privatisation or demolition - this is mainly a case of simple neglect.

Read more: Albanese government tackles housing crisis on 3 fronts, but there's still more to do

At first sight, NSW did relatively well during the 2010s. Social housing stock apparently rose by 9% compared with 12% for population.

Unfortunately, this is a somewhat misleading impression. It reflects the NSW government's 2016 decision to widen its definition of social housing to include less-subsidised affordable rental housing managed by community housing providers. While this housing meets an important need for low-paid "essential workers", it is no substitute for housing that very low-income earners can afford.

If not for this redefinition, the NSW chart would more closely resemble the national post-1996 picture.

Social housing supply

Social housing construction numbers aren't directly published in any official series but can be estimated from Australian Bureau of Statistics data on housing commencements. The 2010s began with a dramatic spike as the federal Rudd government invested in social housing as part of its emergency response to the Global Financial Crisis.

But then national and state governments largely stepped back from new social housing investment. NSW annual commencements ran at only 500-1,000 for most of the 2010s. This is less than half the minimum number needed to maintain social housing's share of all housing.

Unlike other states such as Victoria and Queensland, the NSW government resisted calls for state-funded social housing investment as part of pandemic recovery plans in 2020 and 2021. In contrast with those states, NSW expects to achieve only a minimal net increase in social housing in the first half of the 2020s.

Not only is expected construction modest in scale, it is mainly associated with large-scale demolition of "obsolete" public housing to liberate land. Some is then sold to generate investment funds.

Unlike Victoria, the NSW government has continued to insist new social housing cannot be funded from general government revenue.

Read more: The market has failed to give Australians affordable housing, so don't expect it to solve the crisis

The trends are even more problematic than stock numbers suggest, because the system's capacity to generate lettable vacancies continues to decline. Very few newly built properties are coming up for let. And the flow of existing tenancies being ended has dwindled as tenants struggle to find alternatives in the private rental market.

Social housing lettings in 2021-22 were down 13% compared with 2014-15. And a growing share of scarce lettings has to be devoted to priority applicants - those with the most urgent and severe needs. Priority lets grew by 37% over the past four years and made up nearly two-thirds of all lettings (64%) by 2021-22.

Vacancies remaining for non-priority applicants have almost halved since 2014-15 - down 47%.

Homelessness

Many of those assigned priority status are homeless or at imminent risk of becoming homeless. The latest official statistics that directly measure homelessness are from the 2016 census when 38,000 people were homeless in NSW. Relative to population, homelessness was higher than in any other mainland state.

Measured by the average monthly caseload of specialist homelessness services agencies, homelessness has more recently been rising relatively slowly in NSW. It was up 5% in the four years to 2021-22 compared with 8% nationally.

But rising numbers are being turned away - nearly 10,000 people in 2021-22 - up by 22% in three years. This suggests the system is increasingly overloaded.

The wider point is that homelessness is rising while social housing capacity is shrinking.

Read more: Homeless numbers have jumped since COVID housing efforts ended - and the problem is spreading beyond the big cities

After several years of stability or slight reductions, the social housing waiting list (excluding existing tenants) grew by 15% in 2021-22 to 52,000 households. But annual snapshot statistics mask large numbers joining and leaving the list each year.

By our calculations, 17,000 households newly enrolled on the NSW social housing register in 2020-21, nearly double the number given a tenancy. That's another powerful measure of shortage.

Note that the rules on waiting list eligibility are strict. The weekly household income limit in 2022 was $690 - well below the full-time minimum wage of $812.60.

Far greater numbers of people are homeless or living with rental stress than are on the list. Many people who could qualify realise their chances are so slim it isn't worth the trouble. Others drop off when they realise they face a wait of years or even decades.

Read more: 'Getting onto the wait list is a battle in itself': insiders on what it takes to get social housing

Our recent census-based analysis shows there were well over 200,000 NSW households with an unmet need for social or affordable housing in 2021. Some 144,000 of them would probably qualify for social housing.

True, some of these needs could be met in other ways, such as a major increase in rent assistance. But even if that happened and if no-grounds evictions were outlawed in NSW, private tenancies will remain far less secure than social housing. Arguably, that makes them fundamentally unsuitable for vulnerable people and low-income families.

What lies ahead?

The extraordinary rent spike of 2021-2022 has been the main cause of rising housing need. This happened while immigration all but stopped during the pandemic.

With migration rebounding, there is a serious worry rent inflation will continue to rage, placing even more low-income Australians in financial stress.

Somewhere on the horizon is modest help via the Albanese government's Housing Australia Future Fund. The target is 30,000 new social and affordable dwellings over five years, with NSW likely to get a large share.

However, the HAFF legislation remains under review. Even when new homes begin to flow through, numbers will be quite small relative to need.

Read more: Labor's proposed $10 billion social housing fund isn't big as it seems, but it could work

In NSW, party leaders are touting rival plans to assist first home buyers, but have long neglected arguably more serious policy challenges at the lower end of the housing market. Hundreds of thousands of households are struggling as a result.

Author: Hal Pawson - Professor of Housing Research and Policy, and Associate Director, City Futures Research Centre, UNSW Sydney