Cheaper to buy than rent? Inner-city units buck the trend

Cotality's Monthly Housing Chart Pack, published on Thursday, has unveiled a handful of capital city apartment markets where mortgage repayments on median-priced units are now matching, or even undercutting, the cost of renting. 

Inner Melbourne stands out, where mortgage repayments on units are estimated to be about $322 a month less than equivalent median rents. 

Similarly, parts of inner-city Darwin and Canberra’s Woden Valley show a minimal gap between renting and buying. 

Cotality head of research Gerard Burg said the parity is being driven by rents rising 5.5% over the past year amid a 1.5% vacancy rate, as some apartment values were tempered by fresh supply.

“Rents have risen rapidly over the past few years and we’re seeing that growth pick up again,” Mr Burg said. 

“When rents rise faster than property values, the cost gap between renting and buying naturally narrows.”

Affordability constraints further narrow the rent-buy gap 

Aside from re-accelerating rents, ultra-low vacancy rates, and tempered unit price growth, affordability constraints are largely underpinning the parity between buying and renting. 

The monthly housing report found the lower-price end of the housing market recorded substantially stronger value growth than its high-price peer in the past year, the former up 11.5% versus just 6.6% growth in the latter.

This signals home buyers are going after cheaper stock, which are often units. 

“The most affordable segment of the market is attracting the largest pool of buyers… and that competition tends to support stronger value growth at the lower end of the market while higher price brackets are seeing more moderate demand,” Mr Burg noted. 

Full cost of ownership still matters

However, before you make a dash to a home loan lender, Cotality reminds aspiring homeowners to consider the full cost of transitioning from renting to owning. 

“Even where mortgage repayments appear similar to rents, buyers still need to factor in additional costs, such as deposits, rates, insurance, body corporate fees, and maintenance,” Mr Burg said. 

Read also: Costs of owning a home

Also worth considering is that the parity is highly location- and property type-specific.

And according to the report, when it comes to houses, renting remains the cheaper option.  

In current numbers, no capital‑city areas contain detached houses that are cheaper to buy than rent. 

The financial downside to renting, however, is that renters don’t see the wealth benefits most homeowners experience.

“Especially over the past five years, where Australian home values have surged almost 44% higher, adding approximately $280,000 to the median dwelling value,” Mr Burg said. 

Cost of finance remains a swing factor. 

Cotality’s mortgage‑versus‑rent comparison assumes a 20% deposit on a 30‑year loan with 5.75% interest rate.

With the RBA lifting the cash rate to 3.85% in February, and market pricing allowing for another hike, average mortgage rates could edge higher, widening the gap and swinging the pendulum back toward renting.