Get Fact

Feb 6, 2013

Get Fact: is it really ‘cheaper to buy than rent’?

It's cheaper to buy a house than rent one, according to a story in The Australian Financial Review. We apply the Crikey Get Fact test to that rather bold statement.

Adam Schwab — Business director and commentator

Adam Schwab

Business director and commentator

The headline in The Australian Financial Review raised eyebrows: “It’s cheaper to buy than rent,” screamed Australia’s leading financial rag. Reporting on a study by Mortgage Choice, Debra Cleveland reported “it’s cheaper to buy a home than rent in almost every Australian capital city … despite fewer government incentives”.

But the paper seemed more content to recycle a press release rather than actually consider whether the result of the so-called study made any sense at all. So Crikey applied the Get Fact test.

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19 thoughts on “Get Fact: is it really ‘cheaper to buy than rent’?

  1. Alan Davies

    No mention of tax-free capital gain?

  2. zut alors

    Mortgage Choice’s study reeks of being prepared by someone who has never owned a property.

  3. Philip Clay

    The comparison by Adam Schwab is also flawed. it is still not a comparison of like with like. The comparison should be of the median rental with the cost of acquiring and maintaining a dwelling of the same capital value. That is, what is the capital cost of the dwelling with the median rental and compare that with the median rental. Then you know what the relevant costs of the same house are. We simply don’t know if the median rental dwelling is of the same quality/capital cost as a dwelling of the median property price. Look at the same house – how much is it to rent, how much is it to buy. That’s the question.

  4. Christopher Nagle

    A five percent capital gain on a $500,000 is $25,000. Not guaranteed of course, but a significant factor in the buy or rent calculation.

  5. kmo

    I never understand where these statements come from. Even a basic loan calculator will tell me that I would need to pay almost double my rent + fees + ongoings if I was to try to buy. And that’s without an attempt to stay close to the city or keep the square footage I have now.

  6. Mike Smith

    However, when you’ve finished paying off a home loan, you’ve got an asset worth a few 100k. When you have paid a rent for the same period, you *might* have a few 100k, but my bet is most have spent it. Dollar spent on cars and consumer electronics during that period are not assets 🙂

  7. Phen

    Part of the problem is that median property prices are extremely rubbery and not always representative. For that reason I’m sure that the very frequent (quarterly?) house price movement data that gets harped on about is effectively meaningless.

  8. Adam Schwab

    @Philip Clay – your reasoning doesn’t make sense. The comparison is between renting and buying, so the correct metric is to use median property price (which covers the ‘buying’ part. Using median rental is incorrect. Less incorrect than what Mortgage Choice did, but still incorrect,

  9. drsmithy

    A five percent capital gain on a $500,000 is $25,000. Not guaranteed of course, but a significant factor in the buy or rent calculation.

    And with a $400k mortgage @ 6.5%, you only have to pay the bank $26,000 to take that chance !

  10. David Hand

    What’s “real” about going for the median house price? Most renters would be looking at entry level house prices. Median house prices mostly are purchased by people with a substantial deposit. While you rightly point out there is opportunity cost with the deposit, the fact remains that if you buy a house using a mortgage and do nothing else, 30 years later you own a freehold home. If you rent, 30 years later you own zip.

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