For agents talking to tenants about making the leap into home ownership, new data suggests the rent-versus-buy conversation is becoming more nuanced in several Australian unit markets.
Analysis from Cotality shows there are now pockets of the country where the cost of servicing a mortgage on a median-priced apartment is roughly the same as, or even less than, paying rent.
The findings come from Cotality’s March Monthly Housing Chart Pack, which highlights inner Melbourne as one of the clearest examples. In that market, mortgage repayments on a median-priced unit are estimated to be around $322 per month lower than the equivalent median rent.
Parts of inner-city Darwin and Canberra’s Woden Valley are also showing a very small gap between rental costs and mortgage repayments on a median unit.
According to Gerard Burg, the shift reflects how rapidly rents have risen compared with unit values.
“Rents have risen rapidly over the past few years and we’re seeing that growth pick up again, with the national rental index up 5.5% over the past year and vacancy rates around 1.5%,” Mr Burg said.
“At the same time, some apartment markets have seen additional supply come online, which has helped keep a lid on value growth even as rents continued to rise. When rents rise faster than property values, the cost gap between renting and buying naturally narrows.”
However, while the headline comparison may be attractive for tenants considering buying, the broader financial picture still needs to be considered.
“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.
“Even after the significant double-digit growth in some of the smaller capital cities in the past few years, the smallest differences were generally seen across Darwin, Hobart and some outer areas of Adelaide and Perth, but renting remains the cheaper option for houses.”
The analysis also highlights the longer-term wealth gap between renters and owners.
“The financial downside to renting 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.
Beyond the rent-versus-buy comparison, the chart pack reveals a market increasingly shaped by affordability pressures.
Lower-priced homes continue to outperform the top end, with capital city dwelling values across the lower quartile rising 11.5 per cent over the past year compared with 6.6 per cent across the upper quartile.
Mr Burg said that trend reflects where buyer demand is concentrating.
“The most affordable segment of the market is attracting the largest pool of buyers, particularly when borrowing capacity is stretched and investors are competing with a pickup in first home buyer demand,” he said.
“That competition tends to support stronger value growth at the lower end of the market while higher price brackets are seeing more moderate conditions.”
Supply conditions remain tight across the country, with total listings sitting 11.4 per cent lower across the combined capital cities and 17.5 per cent lower across regional markets compared with a year ago.
New listings are only 0.1 per cent higher than a year earlier but remain almost 4 per cent below the five-year average, while vendor discounting across the capitals is sitting near record lows at 2.9 per cent.
Investor activity is also picking up. Lending to investors increased 7.9 per cent over the December quarter and is 31.8 per cent higher year-on-year, with investors accounting for 39.7 per cent of total lending.
First home buyers are also becoming more active, with lending rising 6.8 per cent by volume and 15.5 per cent by value over the quarter, representing 29.6 per cent of owner-occupier lending.
