More than half of homes will be cheaper to buy than rent in next ten years

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on April 30, 2021
More than half of homes will be cheaper to buy than rent in next ten years

Despite runaway house prices, more than half of Australian homes will be cheaper to buy than rent over the next decade, a new report says.

The latest REA Insights Buy or Rent 2021 Report found it will be cheaper to buy than rent around 57% of houses across Australia, based on modest house price growth of 3% a year over the next decade.

That analysis also found that over the next ten years the share of units that will be cheaper to buy than rent is close to 75%. 

Realestate.com.au economist Paul Ryan said record low mortgage interest rates have made it more affordable for people to enter the property market, although saving for a deposit remains an issue for first-time buyers

"Interest rates can currently be fixed below 2% per year and the Reserve Bank of Australia has committed to maintaining low interest rates until at least 2024," Mr Ryan said.

"This certainty that mortgage costs are not going to increase rapidly provides comfort to buyers borrowing larger amounts."

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Source: REA

The analysis found that if interest rates remain low, moderate property price growth will likely offset the additional costs of owning, like stamp duty, maintenance and council or strata rates

It also assumes that buyers already have a 20% deposit saved, which Mr Ryan said would remain the biggest hurdle for first home buyers with house prices rapidly rising. 

"Many would-be buyers can already afford loan repayments, but struggle to save a deposit while renting" he said.

"Continued price growth may cause additional concern for many in this position."


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

Variable
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UNLIMITED REDRAWSSPECIAL OFFER
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

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Variable
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100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
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100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
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NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

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Variable
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REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
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NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
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Live-in Variable Loan (Principal and Interest) (LVR < 90%)

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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 25, 2022. View disclaimer.

The cheapest suburbs to buy instead of rent

Unsurprisingly, the analysis found conditions are the most favourable for buyers outside the biggest capital cities.

More than 60% of houses and almost all units outside of New South Wales and Victoria are estimated to be cheaper to buy than rent in a decade. 

"Affordability is driving demand and as a result it is likely we will continue to see strong regional price growth," Mr Ryan said. 

The Northern Territory offers the most opportunities for house buyers, where it's cheaper to buy than rent in almost 98% of suburbs.

Similarly, 100% of two-bedroom apartments in the Top End are cheaper to buy than rent.

Queensland is the next best state for affordability, with 85% of suburbs cheaper to buy a three-bedroom house than rent.

In Greater Brisbane, the suburb with the largest price differential to buy a three-bedroom house as opposed to rent, was Kilcoy, with an estimated monthly difference of $1,014.

Brisbane's top ten list was dominated by suburbs in regional areas, with Lockrose, Waterford, D'Aguilar and Toogoolawah making the list.

Buying a three-bedroom house in Sydney's Tacoma would be $578 cheaper than renting.

Again, Greater Sydney's top ten list was largely full of suburbs in regional Central Coast, where prices surged 13.6% in the last 12 months.

In Greater Melbourne, Waterford Park would be $472 cheaper to buy than rent a three-bedroom house. 

Renting still a cheaper option inner-city

Renting still remains the cheapest option for almost all inner-city areas, but particularly in Sydney and Melbourne.

According to REA more than 60% of houses and just under half of units in New South Wales and Victoria are estimated to be cheaper to rent over the next 10 years.

"While rents do not typically adjust as quickly as prices, the COVID-19 pandemic and the cessation of international travel saw significant reductions in asking rents in inner city Sydney and Melbourne," Mr Ryan said.

"As such, renting in these inner-city areas is currently considered cheap, relative to their very high asking prices."

Unsurprisingly, the suburbs where it's cheaper to rent than buy are in the most expensive inner-city areas.

In Sydney, it would be a whopping $11,413 cheaper per month to rent than buy a three-bedroom house in exclusive Vaucluse over a ten-year period.

In Melbourne, it would be $8,672 cheaper to rent than buy a house in Toorak, while in the Greater Perth area, renters would save $6,491 per month by renting a house rather than buying in Peppermint Grove.

Brisbane renters would pocket an extra $2,725 a month by renting, not buying, a three-bedroom house in the trendy riverside suburb of Teneriffe.


Photo by Parag Gaikwad on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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