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.