Is it cheaper to buy or rent – here’s the latest stats

Key takeaways

The Australian property market has experienced a major shift, with a significant increase in the number of suburbs where renting a house or apartment is cheaper than buying.

This trend is driven by soaring mortgage costs, which have outpaced rent increases, exacerbating the already acute shortage of new housing supply.

Rental prices have been rising faster than inflation due to a shortage of new supply and increasing demand, making it increasingly difficult for renters to find affordable housing, let alone save for a deposit to buy a property.

The solution is to prioritize investment in new housing supply, particularly in high-demand areas such as major cities, and to encourage property investors back into the market by offering incentives and making it easier and more affordable for them to buy and maintain rental properties.

The Australian property market has been experiencing a major shift over the past few years, with a significant increase in the number of suburbs where renting a house or apartment is cheaper than buying.

According to research by CoreLogic for the Australian Financial Review, this trend has been driven by soaring mortgage costs, which have outpaced rent increases, exacerbating the already acute shortage of new housing supply.

With rising immigration and more people returning to major cities as the threat of COVID-19 eases, the situation is unlikely to improve anytime soon.

We’re clearly suffering a rental crisis the likes of which Australia has never experienced before.

In fact, it’s a triple whammy…. all of this extra demand for accommodation at a time that the Reserve Bank of Australia increased the cash rate 10 consecutive times, and when rents have skyrocketed.

This creates a double dilemma for young property buyers, who are struggling to find decent and affordable rental accommodation while also searching for a dwelling.

Rental prices have been rising faster than inflation, due to a shortage of new supply and increasing demand, which has kept vacancy rates at record lows of around 1 per cent.

As a result, it is increasingly difficult for renters to find affordable housing, let alone save for a deposit to buy a property.

So is it cheaper to buy or rent?

This has led to a sharp decline in the percentage of Melbourne suburbs where it is cheaper to service a mortgage on an apartment than pay rent, which has plunged from about 11 per cent to just 2 per cent over the past three years.

Nationally, the percentage of suburbs where it is cheaper to buy than rent an apartment is down by a staggering 98 per cent, with only Darwin, Perth, and rural WA having large numbers of suburbs where mortgage repayments remain cheaper than rents.

Source CoreLogic and the AFR

The situation is even worse for houses, with the percentage of suburbs where it is cheaper to service a mortgage than pay rent falling from 42 per cent to just 9 per cent over the past three years, according to CoreLogic.

In Canberra, it has plunged from more than 53 per cent to zero since 2020.

In Adelaide, the percentage of suburbs where buying was cheaper than renting tumbled from 46 to 2 per cent, in Hobart, it is down from 76 per cent to 2 per cent, while greater Brisbane is down from more than 48 per cent to 2 per cent.

During the past three years, the cost of mortgage repayments on new owner-occupier loans has increased by about $1170, or nearly 90 per cent higher than the $459 rise in rents, according to CoreLogic analysis.

This is due to the median price of a dwelling rising from about $612,000 to around $702,000 and the average interest rate rising from 2.96 per cent to 5.23 per cent.

This assumes a buyer has a 10 per cent deposit for a 30-year principal and interest loan. During the same period, the national median monthly dwelling rent jumped from $1985 to $2444.

While some commentators argue that renters are probably “still ahead” when the additional costs of owning a property are considered, such as insurance, maintenance, and rates, the reality is that investment property owners are also feeling the heat from rising costs.

Investors are selling up

Rising interest rates, higher land tax, and extra compliance costs seem to be scaring investors out of the market.

The number of investment properties on the market for sale has recently jumped from about 20-25 per cent of the monthly total to more than 30 per cent, according to CoreLogic.

It peaked at 35 per cent in 2021, which was a bumper year for investment properties put up for sale.

What’s the solution?

The current state of the Australian property market highlights the need for greater investment in new housing supply.

With rental prices continuing to rise faster than inflation and mortgage costs increasing rapidly, it is becoming increasingly difficult for both renters and buyers to find affordable housing.

This is especially true for young Australians who are struggling to save for a deposit while also paying exorbitant rents.

To address this problem, policymakers need to prioritize investment in new housing supply, particularly in high-demand areas such as major cities.

This could include initiatives such as increasing funding for social and affordable housing, streamlining planning processes, and incentivizing developers to build more rental properties.

Encourage investors back into the market

But the simplest answer to fix the rental shortage is to encourage property investors back into the market.

You see, property investors play a vital role in the rental market – in short, they provide the properties that tenants need to live in, something the government just can’t seem to do.

So, how can we encourage property investors back into the market? Well, there are a few things that could be done.

Firstly, the government could consider offering incentives to property investors.

This could include tax breaks, grants, or other financial incentives that make it more attractive for investors to buy and rent out properties.

Secondly, the government could look at ways to make it easier and more affordable for property investors to buy and maintain rental properties.

This could include streamlining the planning and development process as well as reducing stamp duty and other taxes.

Finally, the government could look at ways to increase confidence in the property market rather than scaring investors with proposed changes to the taxation system or talks about capping rental increases.

Of course, there are many other factors that contribute to the rental shortage, and encouraging property investors back into the market is just one of many possible solutions.

However, I believe that it is a simple and effective way to address the issue and one that deserves serious consideration.

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.