Australian households are getting more exposed to rental stress, and they are less able to escape it due to the lack of public housing, according to a new report from the Productivity Commission.

Around 600,000 households are already struggling to afford rents, leaving them suffering from rental stress, the report said. There are also 170,000 families who only have $35 to spend every day after accounting the money they set aside for rent.

The report also found that while half of households who experience rental stress successfully escape within 12 months, the other half still experience rental stress four years later.

While the population of low-income households only grew 42% between 1994-1995 and 2017-2018, the number of families renting privately increased by 124%. On the other hand, the number of low-income families on public housing fell by 6%.

Commissioner Jonathan Coppel said many households are compelled to rent privately as homeownership and public housing become less attainable. This, in turn, has increased the number of families facing rental stress.

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"Poor rental housing outcomes are a key driver of disadvantage. There have been a lot of discussions lately about whether income support payments are high enough," Coppel said.

Despite the flexibility and desirability of renting privately, it could heighten the risks of financial hardships faced by low-income households, families with children, older people, and people with disability, the report said.

"The overall success of the private rental market in responding to the different forces at play highlights the need not to stymie the responsiveness of rental housing supply with unnecessary taxes or overly stringent regulations," the report said.

Read more: Rent, Maintenance And Paperwork Among Top Causes Of Stress For Landlords

For their part, state governments can look into their local tenancy laws to improve the certainty of tenure for vulnerable tenants.

"For example, there are wide disparities across the country between the minimum notice periods required for eviction on sale of a property, from as little as four weeks to more than eight weeks," the report said.

Furthermore, the Commonwealth Rental Assistance could be improved, given that the maximum payment rates have fallen behind average rents over the past two decades.

"Commonwealth Rent Assistance has proven to be effective in supporting low income and low wealth households, including retirees," the report said.