Is it cheaper to buy or rent the next home? The 2022 PropTrack Buy or Rent Report is a comprehensive financial comparison of the costs of both options, identifying areas that are cheaper to buy and cheaper to rent across the country.
Despite recent price increases, conditions remain good for buyers
Based on current prices, it is estimated that more than a quarter of homes will be cheaper to buy than rent in the next 10 years. This is despite the extraordinary price increases and rising interest rates seen over the last two years.
However, this analysis suggests that the attractiveness of buying and renting is divided across the country. This difference will continue to drive stronger price increases in smaller capitals and regions where purchases are more affordable.
In contrast, rising rents may continue in some areas where purchases are fairly expensive, especially Sydney and Melbourne.
Rising prices and rising interest rates make buying less attractive
It’s cheaper to buy than to rent about 27% of all Australian homes. This is a significant decrease from this time a year ago, when this number was just above 50%.
Continued price increases, coupled with higher-than-expected interest rates, made buying an unattractive option.
However, the conditions vary greatly depending on the type and location of the property.
It is estimated that more than one-third of units nationwide will be cheaper to buy than rent over the next 10 years.
Outside of New South Wales and Victoria, the terms of purchase are much more favorable. In Queensland, Western Australia, and Northern Territories, it is estimated that over 50% of homes are cheap to buy. In contrast, in New South Wales, Victoria, and the Australian Capital Territory, less than 10% of homes seem to be cheaper to buy at current prices.
The balance between buying and renting a median home has changed significantly over the past year.
Mortgage rates have already risen by 75 basis points in 2022 and are expected to rise further. Rents are now a more affordable option in most of the country compared to a year ago, coupled with a strong rise in home prices (14% rise).
The shift to more affordable rents for median homes than buying in late 2021 has responded to the slowdown in national price increases.
The balance between purchase and rental costs provided by this analysis suggests that prices will continue to rise slowly next year and rents will rise strongly.
These trends will rebalance the cost of buying and renting towards buying.
Preferred conditions for lessees will continue to put upward pressure on rents
Rent increases will continue to be strong next year. Nationally, median advertising rents have increased by more than 9% over the past year, and pressure is shifting more and more from rural areas to the metropolitan area.
Due to the relative appeal of renting in cities such as Sydney, Melbourne and Canberra, this will put ongoing upward pressure on rents in these locations.
Comprehensive financial comparison of buying and renting
PropTrack’s financial comparison combines rising expected mortgage rates over the period of ownership with cost of ownership such as stamp duty, maintenance, council or geological interest rates.
This analysis also assumes that the buyer has access to a 20% deposit on the desired property. As prices went up, it became more difficult to store this. Many buyers can already afford to repay their loans, but are struggling to save deposits while renting.