Biggest Decision of Them All – To Rent or Buy?

It’s one of those perennially hot topics that arouses the passions of property enthusiasts everywhere. Renters extol the virtues of greater mobility, lower accommodation costs and more freedom, while owners herald the benefits of building equity in a life-long asset that can be used to help fund their retirement.

So who’s right?

Well just this week the Reserve Bank of Australia fanned the flames of this great barbeque-stopper with the release a new research discussion paper, titled ‘Is Housing Overvalued?’

The paper examines whether it costs more to own a home or to rent, with the authors arguing this is a useful criterion for assessing housing overvaluation. It includes an analysis of the costs associated with owning compared to renting, including interest rates, stamp duty and council rates.

In a nutshell, the authors found that Australian house prices are not overvalued. However, they did issue a note of caution to buyers, noting that: ‘If house price growth were to be slower than the historical average, as some forecasters predict, then the average home buyer would be financially better off renting.’

‘If potential home buyers expected house prices to rise faster than 2.9 per cent (a year), then buying would be more attractive than renting,’ the report goes on to say. So if you’re a buyer banking on homeownership to get you a better return than renting, you need to factor in an annual price increase of around 3 per cent.

According to the authors, Australian house prices have increased an average 2.4 per cent a year since 1955, adjusted for inflation. Importantly, they also note that their findings relate to average housing conditions, around which individual circumstances will differ.

’A household expecting historically average capital appreciation will be better off owning than renting if it values home ownership for non-financial reasons,’ the report says. Owners could also expect to get ahead if they expected ‘to remain in the house for longer than average, or if it has substantial financial savings that it cannot profitably invest elsewhere.’

Beyond the pure financial calculus, many buyers are attracted to homeownership by more intangible benefits. For some, homeownership generates a real sense of pride, while others enjoy a feeling of greater security. Many have a strong desire to renovate and fulfil the dream of a lifetime by creating their own dream home.

It’s impossible to put a cost on these benefits, compared to the pleasure they deliver homeowners. However subjective they may seem, they continue to captivate new generations of buyers who have always dreamed of owning their own home.

According to the most recent available data from the 2011 Census, 33.2 of Queenslanders rent, while 63.5 per cent own their home outright or have a mortgage.

The ongoing allure of homeownership will always hold a special appeal for many, and the REIQ understands this. That’s why we will continue to advocate for policies designed to boost homeownership rates in Queensland.