Why Pay Rent If A Mortgage Is Cheaper?

Tuesday 17 Aug 2021

Before COVID-19, CoreLogic data revealed that around 33.9 per cent of properties across Australia offered a better deal for mortgagees than tenants. The properties in question were limited to 20 per cent of those in regional Queensland and 77.6 per cent of those in Darwin. More than a year and a pandemic later though, not only has the number of properties increased, so have the options.

For the research, approximate mortgage repayments were determined against an individual property using a range of data, then compared with rental data for the same property. The results show 36.3 per cent of Australian properties are cheaper to buy than rent now, from regional New South Wales and South Australia to regional WA. The combination of dramatically low interest rates and the exodus of people from the major cities to regional areas has pushed rental prices up in some markets, despite property prices remaining the same or lower.

Mortgage repayments cheaper in a third of the country

The figures showed that in up to and over half of regional Victoria (43.6 per cent), the ACT (43.6 per cent), Adelaide (47.4 per cent), regional NSW (48.2 per cent), Hobart (50.2 per cent), Brisbane (55.3 per cent), and Perth (59.6 per cent), it was cheaper to buy than rent. Head further from the more densely populated areas of the country and the picture gets even better. In regional Tasmania (71.4 per cent), regional Queensland (73.1 per cent), regional WA (79.4 per cent), regional SA (79.4 per cent), Darwin (86.5 per cent) and regional NT (96.4 per cent), the proportion of properties that are cheaper to buy than rent is astonishing.    

Of course, much of this is focused on regional Australia which has always been known to offer a cheaper cost of living and better bang for your buck in terms of size and return on investment. Regional investors have enjoyed the relief delivered with lower interest rates because of the pandemic too, with RBA data stating rates have fallen from 3.21 per cent to 2.40 per cent between February 2020 and May 2021. 

No good news in the big cities

Cities however are still elusive to most, with property prices in Sydney and Melbourne stubbornly remaining at eye watering levels for the average buyer. In the harbour city, 95.1 per cent of properties are cheaper to rent than buy and similarly in Melbourne, 92.7 per cent  are realistically only on the table for tenants. Conversely though, if you don’t mind the distance, you’re better off buying than renting in some of Australia’s more remote cities such as Hobart, Perth and Darwin. Although not the first place many of us imagine living, the results as previously mentioned showed that the majority of properties in the Northern Territory are cheaper to buy than rent. With 86.5 per cent of Darwin properties and 96.4 per cent of properties in the Northern Territory across the board, all falling under the category of properties that are cheaper to buy, renting seems like a fool’s game.

New opportunities for tenants to invest

What has turned out to be a perfect storm in metropolitan areas – fluctuating rental vacancy rates, low interest rates and increased government incentives - has created great opportunity for tenants to take the next step, get out of their rental properties and finally become homeowners. The range of government support and incentives for prospective homeowners has contributed to increased opportunities for tenants to transition out of the rental market by addressing barriers to entry such as minimum deposit, lenders’ insurance and stamp duty. All of this is particularly good news for first home buyers who have had a particularly tough time over the last year and a half, seeing their dreams of property investment delayed or in fact shattered due to the impact of the pandemic. 

The challenges of life outside of the city

However, there is a need to read between the lines and it’s always been the case that property prices in regional areas have been impacted by the dynamics of who wants to live in those locations, when and why. Darwin and many parts of regional WA are not only remote, but they are also known for having a high transient population, driving rents up due to lack of stable tenancies and fluctuating vacancy rates. People have to be really committed to move there - not only financially, but also mentally and emotionally. The commitment to move to these areas in many cases drives them away from existing networks of family and friends to locations that aren’t cheap or easy to commute to the east coast from. Lifestyle is one thing but all the trappings associated with attachments to the big city are still a key value to many Australians.  

The barriers to entry such as saving for a deposit, paying for stamp duty and insurances and even the required literacy around knowing where to start when it comes to buying a house can present insurmountable challenges to potential investors in these areas.      

It should be said though, that people are certainly making big life changing decisions in the post pandemic world. Its impact has been far reaching across a range of factors – emotional, mental and financial – causing many to re-evaluate their choices around everything from what they do for work, to who their life partner is, to where they live. It’s a prime moment for tenants looking to change their future and they can certainly take their pick of the nation if property investment has now become a priority.