Figures show some places cheaper to buy than rent

There is an old saying that rent money is dead money, yet a study shows it is still far cheaper to rent than buy in most areas.

Figures from RP Data show there are 238 suburbs or towns around Australia where it would be cheaper to pay a mortgage on the median priced home than it would be to rent it.

However, that is out of figures for 5,230 suburbs or towns (with many postcodes split into separate categories for units and apartments).

Areas close to the resources boom dominated the top of the cheaper to buy than rent list, with demand from fly-in fly-out mine workers and construction workers boosting rents, but property sale prices not keeping up because of the knowledge that such red hot demand for housing in places such as the Pilbara is not going to be permanent.

Four of the top ten buy over rent propositions were houses and units in Port Hedland, with the biggest different between rent and mortgage payments being in the Queensland town of Moranbah where it would currently be $4,021 a month cheaper to pay the mortgage on a median priced house than to pay the $1,900 a week median weekly advertised rent.

Across the nation, Queensland had the largest number of areas where it was cheaper to buy than rent (84), with New South Wales having 54, Western Australia 35, Tasmania 25 (despite its small size), South Australia 23, Victoria 10, the Northern Territory six and the ACT just one.

Tasmania had the greatest proportion of suburbs where it is cheaper to buy than rent at 12.3 per cent, while Victoria and the ACT had the smallest at just 1 per cent.

Melbourne also scored poorly amongst capital cities, with only two suburbs where it is cheaper to buy than rent, compared with 22 in Sydney, 20 in Adelaide, 16 in Brisbane and 12 in Hobart.

At the other end of the spectrum, there was a clear trend for houses in the most expensive suburbs to be far cheaper to rent than to buy.

For example, the median house in Perth's Peppermint Grove is valued at more than $4.4 million, but the median weekly rent in that area is $1,200 a week, making it nearly $19,000 cheaper a month to rent than buy in that area.

Melbourne's Toorak is more than $11,500 cheaper per month to rent than buy in, with Sydney's Vaucluse more than $10,500 cheaper per month for renters.

However, the size of this gap in part reflects the type of houses advertised for rent versus those that are owner-occupied.

Useful figures?

RP Data's figures assume a mortgage for 90 per cent of the purchase price at an interest rate of 6.15 per cent, with a 30-year loan.

The analysis does not consider the ongoing non-mortgage costs of home ownership, such as rates, maintenance, land taxes, stamp duty and conveyancing/legal fees, which are generally already included in rents meaning the mortgage figures understate the true costs of ownership.

On the other hand, the figures also only look at current costs, and do not consider the period of mortgage-free ownership and possible capital appreciation that purchasers may receive and renters will not, meaning the data also fails to capture some of the benefits of ownership.

Naturally, the data also does not, and cannot, factor in the future changes in rents and interest rates that will affect a home owner over their lifetime.

However, it is worth remembering that the Reserve Bank has described current mortgage rates as being somewhat below average levels, probably by around half a percentage point.

Aside from locations near the top and bottom of the figures skewed by unique factors (such as mining booms and millionaire mansions) the figures from RP Data tend to indicate which areas are relatively over-priced and which may offer better value for purchasers, whether they are owner-occupiers or investors.

The ratio of home purchase prices to rents is also one of the measures commonly used to determine whether a housing market is over-priced or not, with The Economist magazine having previously labelled Australia's housing market seriously over-valued because that ratio was 56 per cent above its long-term average.

http://www.abc.net.au/news/2012-08-2...n-rent/4231020