An acute shortage of affordable housing is adding to the numbers of homeless people and forcing welfare recipients to seek accommodation on the suburban fringes of Melbourne, where there are fewer jobs and services.

Analysis provided exclusively to the ABC revealed the average rent of $340 for a one-bedroom flat in Melbourne is now more than the $329 paid to a single person on Newstart with rental assistance.

Using State Government affordable housing data released this week, the analysis undertaken by Launch Housing confirmed the alarming long-term decline in affordable housing.

The average weekly rent for all rental properties in Melbourne jumped by 46 per cent — twice the rate of inflation — in 10 years.

In the same period the percentage of affordable housing stock in Melbourne fell from 27 per cent to just 8 per cent.

But Terry Burke, a professor of housing at Swinburne University, said the figure could be as low as 3 per cent.

"Whether it is 3 or 8 percent, this is an enormous social problem," he said.

"Low-income families can no longer find affordable housing in inner Melbourne, they are being pushed to the outer fringes where they do not have access to services or employment."

Decline in affordable housing fuelling homelessness

Tony Keenan, chief executive of Launch Housing, a big provider of homeless services, said a "perfect storm" of factors was wreaking havoc on people on benefits and the working poor.

A steady decline in social housing provided by the Government, negative gearing and population increases fuelling an 80 per cent rise in house prices and failure of rental assistance to match changes in the rental market were having profound impact.

"There is no question that the growing number of rough sleepers on Melbourne streets is related to this unprecedented decline in affordable housing," Mr Keenan said.

"Traditionally a significant percentage of rough sleepers were people with drug and alcohol problems or mental health issues. This is no longer the case, many are just poor.

"The real concern is the health of rough sleepers deteriorates over time."

Analysis provided to the ABC shows:

• In June there were just 25 one-bedroom flats in Melbourne that were affordable for people on the Newstart allowance.
• The median weekly rental for a one-bedroom flat in metropolitan Melbourne was $340 a week. This is the equivalent of 103 per cent of the total weekly income for a single person receiving Newstart and Commonwealth Rental Assistance.
• In the 10 years to June, house prices in Melbourne grew by 80 per cent while the average weekly earnings rose by just 40 per cent.
• According to this week's figures only three local government areas — Melton, Wyndham and Cardinia — had 30 per cent affordable housing stock compared with 14 in 2007.
• The explosion in rents for two- and three-bedroom apartments has outstripped the CPI and eroded the value of Commonwealth Rental Assistance.

Need for 'renewal' in public housing

Mr Keenan said the level of Newstart and rental assistance was already low but because the payments were indexed to the CPI their value was eroding.

"This is causing enormous problems in housing affordability for the disadvantaged," Mr Keenan said.

"It is driving increasing rates of homelessness. Private rental is very difficult to sustain for this group and puts pressure on public housing, which is in decline."

Professor Burke said there has been a big restructuring of the housing market in Melbourne brought about by people migrating to Victoria from other states, the influx of foreign students and negative gearing that encouraged investment in existing housing stock.

"We need a renewal of growth in public housing," Professor Burke said.

"From the 1950 to the '80s people were adequately housed, but that is no longer the case."

He said governments could finance more public housing by extending land tax to apartments and making use of modern financial facilities such as infrastructure bonds.

By Russell Skelton, ABC NEWS, 19 October 2016

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