Analysis finds a handful of districts where repayments are close to, or below, median rents
Buying a unit for much the same monthly outlay as renting remains possible in parts of Australia, despite high prices and tight supply in many cities, according to Cotality’s Monthly Housing Chart Pack for March.
The analysis compares estimated repayments on a new mortgage for a median-priced unit with the median rent in the same market. It identifies several capital-city unit locations where the gap has narrowed sharply and, in a small number of cases, has tipped in favour of buying.
The report points to inner Melbourne as a standout. Mortgage servicing costs on a median unit there are estimated to be about $322 a month lower than the equivalent median rent, based on Cotality’s calculations.
In other markets, the difference is small rather than reversed. The findings indicate that parts of inner-city Darwin and Canberra’s Woden Valley have only a minimal gap between unit rents and estimated unit mortgage repayments.
“Rents have risen rapidly over the past few years and we’re seeing that growth pick up again, with the national rental index up 5.5% over the past year and vacancy rates around 1.5%,” said Gerard Burg (pictured right), head of research at Cotality.
“At the same time, some apartment markets have seen additional supply come online, which has helped keep a lid on value growth even as rents continued to rise. When rents rise faster than property values, the cost gap between renting and buying naturally narrows.”
Cotality, however, notes that detached housing remains materially more expensive to buy than to rent across capital-city regions. “Even after the significant double-digit growth in some of the smaller capital cities in the past few years, the smallest differences were generally seen across Darwin, Hobart and some outer areas of Adelaide and Perth, but renting remains the cheaper option for houses,” Burg said.
The paper argues that renters face a longer-term trade-off even when weekly cashflow looks better. “The financial downside to renting is that renters don’t see the wealth benefits most homeowners experience, especially over the past five years where Australian home values have surged almost 44% higher, adding approximately $280,000 to the median dwelling value,” Burg added.
Beyond the rent-and-repayment comparison, the March chart pack highlights uneven price growth across the market. Over the past year, capital-city values in the lower quartile rose 11.5%, compared with 6.6% in the upper quartile, pointing to stronger competition at cheaper price points.
Burg attributed the divergence to affordability pressures. “The most affordable segment of the market is attracting the largest pool of buyers, particularly when borrowing capacity is stretched and investors are competing with a pickup in first home buyer demand,” he said. “That competition tends to support stronger value growth at the lower end of the market while higher price brackets are seeing more moderate conditions.”
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