Renters would now be financially better off buying one-third of the places they rent

Renters in many major capital cities would now be financially better off buying the apartment or unit that they live in, according to new analysis that further highlights the ongoing rental affordability crunch for lower-income households.

The data from private analytics company PropTrack compares the estimated cost of renting a property for 10 years versus purchasing one with a 20 per cent deposit, adding in stamp duty and rates.

Early last year, it was found about one-quarter of properties nationally were cheaper to buy than rent. This has now risen to a third.

This trend is much more acute when you split out apartments or units.

a graph with bar charts and cities — Housing analytics firm PropTrack released this data on November 28, 2023.(Supplied: PropTrack)

PropTrack economist Paul Ryan says this trend is emerging not because buying is getting cheaper but because rents keep going up rapidly, especially at the “bottom end” of the market dominated by students, young people and those on lower incomes.

“We’ve seen rent growth on units increase quite substantially,” he adds.

Housing market analysts say there are many reasons behind the continuing rental crunch, including the resurgence of migration, unwinding trends after the pandemic and a slowdown in new builds as higher interest rates put off developers.

Mr Ryan says rising rents may help explain why property prices are still rising, despite the period since May last year being the fastest rate hike cycle in Australia’s history.

“Despite higher interest rates, there are a lot of renters still looking to purchase because of the strains on rental markets and how difficult it is to find a rental,” he says.

“[With] how sharply rent costs are going up, a lot of first-time buyers, I think if they could manage it, they would love to jump into home ownership just to avoid the uncertainty of rent costs over the next year or so.”

Hurdle deposits remain

However, the deposit hurdle is a huge obstacle for many first-time home buyers.

Since 2001, the national ratio of median house price to median income has almost doubled to 8.5, and the time required for the accumulation of a deposit for a typical property has increased to 14 years.

“It’s a really challenging time for first home buyers,” Mr Ryan says.

“I think that’s why we’re seeing continued migration for young families to places like Brisbane, Adelaide and Perth, where buying conditions are much more favourable,” he says, adding that this trend may also be pushing people into regional Australia.

“The big story of 2023 has been higher housing costs for everyone.

“We’ve seen mortgage rates increase really sharply. We’ve seen rents increase really sharply.”

“And that’s on top of generalized price inflation. Housing costs are presenting a lot of financial challenges for Australians this year.”

On the flip side, based on PropTrack’s analysis, it is still much cheaper over 10 years to rent a house in most major cities than buy one.

The median price of a detached house in Sydney is now almost $1.4 million, above $900,000 in Melbourne, and more than $860,000 in Brisbane, according to data from rival firm CoreLogic for October.

‘A depressing set of data’

University of Sydney housing analyst Professor Nicole Gurran reiterates that the trend of more places being cheaper to buy than rent is emerging because rents are going up, not because property prices are dropping.

“This is a depressing set of data,” he says.

“The good news here may be for investors because they may be able to negative gear. But there is no good news for first home buyers because prices haven’t dropped. And while they’re trying to save for a deposit, they’re facing higher rents.

“For all the big apartment boom that a number of capital cities had in the last decade especially, there has been a failure to embed affordable housing requirements as part of the development process.

“It has left us with a legacy of unaffordable apartment rents and a generation of renters who can’t afford to purchase.”

She says this emphasizes the need for future new buildings to have a large component of social and affordable housing. Currently, the federal government has pledged to build 30,000 over the next five years, which she notes is a major deficit in what is needed.

Housing analytics firm PropTrack released this data on November 28, 2023.(Supplied: PropTrack)

PropTrack’s Paul Ryan says the balance in favor of buying likely won’t change next year unless interest rates drop towards the end of 2024, as many economists are forecasting.

This could potentially push up property prices further.

“As home prices start to accelerate again, the share of homes that will be cheaper to rent may increase further,” he says.