Potential home buyers may find it almost as economical, or even cheaper, to pay a mortgage rather than renting – provided they know where to look.
But they would probably be limited to buying a unit, rather than a standalone house, especially in areas where significant numbers of new units have been built.
House values have risen faster than unit values.Credit: Alex Coppel
Unit owners could save $322 a fortnight in the Melbourne City region, compared with renting there, research from Cotality shows. The statistical region largely overlaps with the City of Melbourne local government area.
A buyer of the typical unit in the Liverpool region in Sydney’s west would pay only $20 a fortnight more on their mortgage than if they were renting, while the impost would be $38 more in the Merrylands-Guildford area and $40 more in the Parramatta area.
There are 20 regions nationally where mortgage repayments cost up to $102 more than rent per fortnight.
Cotality head of research for Australia Gerard Burg emphasised that home buyers faced transaction costs and needed to save a deposit, but even so, he said it was unusual for mortgage repayments to be lower than rents.
Renters may be able to find a home for little more than their rental costs.Credit: Alex Coppel
“The tax environment, or settings, are such that investors are often willing to take a loss due to negative gearing. These sorts of things would generally lead to a situation where rents are lower than the mortgage repayments,” he said.
He said house values had risen significantly over the past five or so years, while unit values in many markets had gone sideways, and in inner Melbourne, even gone down. Melbourne City unit values peaked in June 2017, he said, amid a wave of supply of new apartment buildings in the area.
“When we look at what we’re seeing in the City of Melbourne right now it really reflects the decline in the median value over time as a lot of supply has come online and as a result that has pushed down the mortgage repayments while rents have continued to edge a little bit higher,” he said.
“Parramatta has been home to a lot of unit development over the last couple of years, so again it’s a broader story of supply coming on in a big chunk versus the level of demand.”
Conventional wisdom suggests that rent money is dead money, but Burg did not think this was the case, noting that renters may not be in a position to buy.
“Ultimately, you’re purchasing shelter, and typically it’s the lowest cost,” he said.
“The challenge in getting on the ladder in the first place [is] the deposit is the biggest hurdle.”
Home buyers who hoped for a house rather than a unit would face a steeper increase in costs compared with renting in the same area.
The smallest gap in Melbourne is in the Melton-Bacchus Marsh region, where mortgage repayments are $520 more than rent per fortnight, the analysis showed. It was followed by Sunbury at $522 extra and both the Casey South and Wyndham regions at a gap of $536 each.
No Sydney regions made the national top 20 rankings.
The research comes after Westpac on Wednesday found that consumers’ views on whether it is a good time to buy a dwelling fell in March to the lowest point this cycle, and well below average levels.
A previous Productivity Commission study found housing would be more affordable if more homes were built.
PRD chief economist Diaswati Mardiasmo thought some of the areas where it was relatively affordable to buy a home had a larger stock of homes.
“There has been more stock available in the Melbourne CBD unit market. It is the same almost with the Sydney one, although the difference is much bigger in the Melbourne CBD,” she said.
“There is definitely more units available and that has made the Melbourne CBD one of the more competitive markets. Melbourne units are definitely the place to go for first home buyers to try their luck.
“Liverpool [and western Sydney] it is the same but not to the same extent. They have had a surge of units. It is just availability of stock right now.”
Mardiasmo added that in practice, first home buyers needed to raise a deposit, not just meet the mortgage repayments. They also needed to pay council rates, body corporate fees and maintenance, she said.
“Your mortgage repayments can change,” she said, adding the list of suburbs where it’s cheaper to buy than rent may be different in the next 12 months.
“You have got that security in the place you live, you have got that equity … that would be more why you would buy rather than it’s $300 cheaper for the rent.”
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