Third Of Australian Homes Cheaper To Buy Than Rent
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Third Of Australian Homes Cheaper To Buy Than Rent

Low interest rates and ascendant regional rent prices have seen mortgages look attractive.

By Kanebridge News
Thu, Jul 15, 2021 10:18amGrey Clock < 1 min

Outside Australia’s two most populous major capital cities – Sydney and Melbourne – the incentive to buy a home has never been higher with homes across the rest of the country generally cheaper to buy than rent.

Only 4.9% of homes in Sydney and 7.3% of homes in Melbourne were cheaper to buy than rent, according to a new report by Corelogic.

Elsewhere, between 43% to 96% of other Australian addresses are cheaper to service a mortgage when compared to renting, including Brisbane.

The report showed buying cost less than renting at 36.2% of properties across the country, up from 33.9% last year.

Further, the demand for new homes increased by 15.3% driven by owner-occupiers while rent went up where domestic migration was strong.

Proportion of homes cheaper to buy than rent

Capital Percentage cheaper to buy Regional homes Percentage cheaper to buy
Darwin 86.5% NT 96.4%
Perth 59.6% WA 79.4%
Brisbane 55.3% Qld 73.1%
Hobart 50.2% Tas 71.4%
Adelaide 47.4% SA 47.4%
ACT 43.6
Melbourne 7.3% Vic 43.6%
Sydney 4.9% NSW 48.2%
Combined 26.2% Combined 60.1%

^Source: Corelogic Property Pulse

“The combination of lower rent growth and very strong dwelling value growth has meant that even fewer properties across Sydney are cheaper to pay down a mortgage than rent, at just 4.9 per cent,” said Corelogic head of research Eliza Owen.

“This is down from 7.1 per cent when the analysis was done with the same assumptions in February 2020.”

Owen added results were also indicative of lower interest costs on mortgage debt since the onset of Covid-19.

“However, reduced interest costs have not led to cheaper mortgage serviceability relative to rents in every instance,” Owen said.



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Stronger demand in some areas is pushing unit rents up faster than houses

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Renters are returning to the apartment market, leading to higher growth in weekly rents for units than houses over the past year, according to REA data. As workers return to their corporate offices, tenants are coming back to the inner city and choosing apartment living for its affordability.

This is a reversal of the pandemic trend which saw many renters leave their inner city units to rent affordable houses on the outskirts. Working from home meant they did not have to commute to the CBD, so they moved into large houses in outer areas where they could enjoy more space and privacy.

REA Group economic analyst Megan Lieu said the return to apartment living among tenants began in late 2021, when most lockdown restrictions were lifted, and accelerated in 2022 after Australia’s international border reopened.

Following the reopening of offices and in-person work, living within close proximity to CBDs has regained importance,” Ms Lieu said.Units not only tend to be located closer to public transport and in inner city areas, but are also cheaper to rent compared to houses in similar areas. For these reasons, it is unsurprising that units, particularly those in inner city areas, are growing in popularity among renters.

But the return to work in the CBD is not the only factor driving demand for apartment rentals. Rapidly rising weekly rents for all types of property, coupled with a cost-of-living crisis created by high inflation, has forced tenants to look for cheaper accommodation. This typically means compromising on space, with many families embracing apartment living again. At the same time, a huge wave of migration led by international students has turbocharged demand for unit rentals in inner city areas, in particular, because this is where many universities are located.

But it’s not simply a demand-side equation. Lockdowns put a pause on building activity, which reduced the supply of new rental homes to the market. People had to wait longer for their new houses to be built, which meant many of them were forced to remain in rental homes longer than expected. On top of that, a chronic shortage of social housing continued to push more people into the private rental market. After the world reopened, disrupted supply chains meant the cost of building increased, the supply of materials was strained, and a shortage of labour delayed projects.

All of this has driven up rents for all types of property, and the strength of demand has allowed landlords to raise rents more than usual to help them recover the increased costs of servicing their mortgages following 13 interest rate rises since May 2022. Many applicants for rentals are also offering more rent than advertised just to secure a home, which is pushing rental values even higher.

Tenants’ reversion to preferring apartments over houses is a nationwide trend that has led to stronger rental growth for units than houses, especially in the capital cities, says Ms Lieu. “Year-on-year, national weekly house rents have increased by 10.5 percent, an increase of $55 per week,” she said.However, unit rents have increased by 17 percent, which equates to an $80 weekly increase.

The variance is greatest in the capital cities where unit rents have risen twice as fast as house rents. Sydney is the most expensive city to rent in today, according to REA data. The house rent median is $720 per week, up 10.8 percent over the past year. The apartment rental median is $650 per week, up 18.2 percent. In Brisbane, the median house rent is $600 per week, up 9.1 percent over the past year, while the median rent for units is $535 per week, up 18.9 percent. In Melbourne, the median house rent is $540 per week, up 13.7 percent, while the apartment median is $500 per week, up 16.3 percent.

In regional markets, Queensland is the most expensive place to rent either a house or an apartment. The house median rent in regional Queensland is $600 per week, up 9.1 percent year-onyear, while the apartment median rent is $525, up 16.7 percent.

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