It’s well documented that prices have risen at a much higher rate than wages over the past few decades, and many Aussies, particularly Gen Z, are nihilistic on the prospects of home ownership, resigning themselves to a lifetime of renting.
However, some people for whom buying is a viable option still decide to rent instead. With investing in other asset classes more accessible than it’s ever been, plenty of people decide to hold off on buying, and rent for as long as possible to invest elsewhere. Renting allows more freedom of movement and the opportunity to make alternative investments.
That said, there is definitely still merit in the ‘Australian Dream’ of home ownership, and buying can provide long term stability, while also investing long term in property which is generally considered safer.
In the end the decision you make on buying or renting is a multi faceted decision and is different for everyone.
If you’re a renter debating whether or not to buy, it can’t hurt to do a cost analysis specific to you and where you live/want to live, comparing how much you pay in rent with roughly how much your mortgage repayments would be for a similar property.
Infochoice has a range of calculators that you might find useful when running these numbers.
Mortgage repayments calculator
Advantages of renting over buying
There are several inherent advantages to renting rather than buying your home.
Diversified investment portfolio
One of the main advantages of renting over buying is that renters can invest across several different sectors, reducing exposure to any single asset. For most people paying off a home loan, the majority of their savings go into the mortgage. Home ownership is effectively a big investment into one property, which is great if it increases in value, less so if it doesn’t. Many people prefer a diversified investment portfolio, so they choose renting over buying to avoid overexposure.
Read more: Investing in Property vs Shares
Flexibility
Renters typically have much more flexibility when it comes to moving house. Once a lease has expired, there is nothing stopping a renter from moving suburbs, interstate or even overseas. This can be a great way to sample a few suburbs in a city, or live somewhere for a short while before becoming a digital nomad and packing your bags to head overseas.
While homeowners can still move and just rent out the property, this means changing from an owner occupied home loan to an investment home loan, which typically means higher rates, as well as the other costs of being a landlord like property management. If you anticipate moving to a different area in the near future, it can be a lot less hassle being a renter.
Save on home ownership costs
Most maintenance expenses in a rental property are the responsibility of the landlord, not the tenant. If the air conditioner in your rental breaks, for example, you don’t need to pay for it to get fixed, whereas those who own the house they live in have to foot 100% of these bills.
In addition, buying and selling property comes with significant upfront costs, such as stamp duty, which can be tens of thousands of dollars. These policies act as a handbrake on the housing market and make people more reluctant to find a ‘right size’ home even as their needs shift, such as retiring or the kids flying the coop.
With renting, you usually pay a bond (four weeks' rent) plus two weeks' upfront then away you go.
Advantages of buying over renting
At the same time, there are also some very compelling factors that make buying look like the more attractive option.
Exposure to the property sector
While some people are apprehensive about a large investment into a single asset, the flip side of this is property investment is generally less volatile than the stock market. Property tends to be less sensitive to market shocks, with less elastic demand, since people will always need a roof over their head. Even if you don’t intend to live in the home you’re buying long term, you can still turn it into an investment property, and rent or even buy elsewhere.
Long term stability
Buying a home allows you the peace of mind of knowing you can live undisturbed in your home for as long as you want. If you live in a rental, there’s always the possibility of a landlord upping your rent, or selling the property from beneath you - or just opting not to renew your lease.
Unrestricted use of the property
Another big advantage of buying is the ability to do whatever you want with your home, with no restrictions. As a tenant, something as simple as adding in an extra power point or even hanging a picture frame needs your landlord's approval. Hearing back from the landlord could take a while and they could reject your request.
Once you own your home, nothing is off the table including renovations or extensions, which can boost the value of your home as well as improving your quality of life. If you live in a strata title property, there may be body corporate restrictions as to what you can do, however, particularly on the outside of the home.
Getting on the property ladder and access to equity
Once you own one property, it normally becomes a lot easier to buy in future. If you’re in a positive equity position, meaning your property is worth more than the outstanding amount owed, you will likely make money when you sell, which can go towards your next property purchase.
Say you’ve owned your home for 10 years, and are looking to buy another property. Your current house is worth $800,000 and there is $400,000 outstanding on your home loan. This is called equity.
You can likely put most of the $400,000 forward as a deposit for your new home. This is likely to mean favourable borrowing conditions
There are other advantages to equity even if you aren’t looking to sell. You could borrow against your equity, which will generally be at substantially lower rates than normal personal loans. This could go towards large one-off expenses like a holiday or a wedding, or even buying a second property.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 70% | Featured Online ExclusiveUp To $4K Cashback |
| |||||||||
5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% | Featured Apply In Minutes |
| |||||||||
6.14% p.a. | 6.16% p.a. | $2,434 | Principal & Interest | Variable | $0 | $250 | 60% | Featured Unlimited Redraws |
|
Renting vs Buying in 2024
Cost analysis
Out of necessity, affordability is the primary consideration for many people choosing between renting or buying. For some people, the catalyst to take the plunge and buy property is soaring rental rates. On the other hand, when renting is comparatively cheaper, it can put people off buying.
The below analysis is an approximate attempt to compare these costs throughout 2023. It compares the average median rental rate in a given month with the mortgage repayments of someone buying at the national median property price at the average variable rate for new home loans at the time.
Data on median property price and rental rate is from CoreLogic, the RBA provides average variable mortgage rates and repayments were calculated using the InfohCoice home loan repayments calculator. We’re assuming a 30 year loan term, 80% LVR, and to better equivalise, we’re also assuming weekly home loan repayments.
|
National median property price |
Loan size (80% of property value) |
Average variable rate for new loans (LVR<81%) |
Weekly repayments |
National median rent |
|
|
January |
$702,725 |
$562,180 |
4.94% p.a |
$691.21 |
$570 |
|
February |
$702,136 |
$561,708.8 |
5.14% p.a |
$706.50 |
$570 |
|
March |
$704,723 |
$563,778.4 |
5.39% p.a |
$729.25 |
$570 |
|
April |
$709,130 |
$567,304 |
5.37% p.a |
$732.18 |
$589 |
|
May |
$715,092 |
$572,073.6 |
5.61% p.a |
$758.19 |
$589 |
|
June |
$723,006 |
$578,404.8 |
5.89% p.a |
$790.31 |
$589 |
|
July |
$728,831 |
$583,064.8 |
5.90% p.a |
$797.54 |
$588 |
|
August |
$732,886 |
$586,308.8 |
5.95% p.a |
$806.31 |
$588 |
|
September |
$740,668 |
$592,534.4 |
5.97% p.a |
$816.62 |
$588 |
Mortgage repayments and rental rates tend to be correlated, which makes sense: when interest rates go up, property investors tend to pass on the cost to tenants by upping rates.
In general, mortgage repayments are more expensive than rent, and that’s not including other costs involved in owning property like maintenance or stamp duty. That isn’t always the case though. PropTrack analysis in October ‘23 found across Australia, more than a third (36%) of all properties were cheaper to buy than rent over a 10 year period. In Sydney and Melbourne, it was less common for buying to be cheaper, but some of Australia’s other major cities stand out, particularly Perth.
Read more: Where it’s cheaper to buy
Units v Houses
According to PropTrack, in October '23 over half (55%) of all the units across Australia worked out to be cheaper to buy over a 10 year period, compared to 29% of houses. Experienced property investors might note that historically, unit prices don’t tend to appreciate as much as house prices, but this might not always be the case.
Housing Australia is predicting the nation will be short approximately 175,000 properties by 2027, with 59% of this deficit in the unit market. CoreLogic economist Kaitlyn Ezzy says the conditions could be right for unit prices to increase significantly in the coming years.
“Australia faces a relatively low number of approved projects, which may create a temporary vacuum in new unit supply,” she said.
Property market in 2024
Predicting how the property market will behave in the future can be futile. There are all kinds of unexpected things that could happen in 2024 that would have an unforeseen impact on the property market, so it’s important to not rely too much on market forecasts.
In general, both property prices and rental rates are expected to keep growing, although this might not be uniform. The most recent CoreLogic home value index suggested price growth is stagnating in Sydney and Melbourne, with affordability issues at the top end of the market. In Brisbane, Perth and Adelaide though, tight supply is keeping growth strong, which CoreLogic Research Director Tim Lawless expects to continue into next year.
“WA and Queensland look well placed to outperform the rest of the country given solid interstate migration rates, low supply and less affordability challenges relative to Sydney and Melbourne,” he said.
Interest rates will be another big factor in affordability, for both mortgage holders and renters. ‘Upside surprises’ to inflation could mean further increases to the cash rate, which would constrict borrowing power, although this could also put downward pressure on property prices.
In the rental market, vacancy rates around the country continue to sit near record lows, which is keeping rental growth strong. Big overseas migration numbers have kept demand high, but the Government recently announced it intends to half Australia’s migration intake by June 2025, which might ease competition to a degree.
At the same time, some in the property industry are also predicting an upcoming deficit of property investors, with some put off by regulation like rent caps and land tax, which could mean fewer rentals available, pushing up rates.
Read more: Property market forecasts for 2024
Read more: Why rental growth could moderate in 2024
Need help with a home loan?