Rent Versus Buy in a Challenging Market

It’s an age old argument as to whether it is more cost effective to buy your own home or rent. Obviously, there are pros and cons for both.

Ownership offers a sense of security particularly for families who may need to consider school catchments and of course in retirement, home ownership provides security around being evicted should the landlords needs change.

In a super low interest rate environment, the cost of ownership may also be cheaper than renting. Generally borrowing capacity increases making home ownership relatively affordable in most capital cities.

Whereas renting offers the opportunity to live where you want to live without the costs associated with home ownership such as property maintenance, insurance, council rates and strata levies. In addition, the cost of entry is lower with no significant deposit or stamp duties.

So, what happens in an uncertain market with rapidly increasing interest rates impacting the cost ownership for owner occupiers and investors. Combine this with historically low rental vacancy rates, with recent figures released by Domain showing Sydney’s rental vacancy rate in August at 1.2%.

As we have seen in the past 4 months, housing prices have corrected sharply in most suburbs driven down by more cautious buyers, rising interest rates and more supply. One could question whether or not this makes a property more affordable as repayments have increased rapidly and borrowing capacity decreases.

From an investor (landlord) perspective any cost of ownership increases such as interest rates, land taxes and maintenance resulting from inflationary pressures gets passed on to tenants. In many cases we are seeing rental stock leave the market as investors look for better yields elsewhere further adding to a shortage of rental properties and increasing rents. Further to this we have seen in many cases permanent rentals transition to short stay holiday rentals as investors chase higher yields in a post pandemic surge for local holiday escapes.

In a recent article on Domain, Brendan Coates, economic policy program director at the Grattan Institute, said “More homes would be needed to support increased demand but with only about 2 per cent of the nation’s housing stock built each year, the situation for tenants was “likely to get worse before it gets better”. Head of Research, Simon Pressley of Propertology Buyers Agents takes a different view on the rental crisis. His research suggests that the demand for rental properties could in fact trigger another property boom in as little as 12 months. Mr Pressely says in a recent article “Governments must choose between even higher rents and increased homelessness or changing the landscape to support large volumes of extra rental supply. The response to the dire shortage of this essential commodity in Australia will trigger another property boom before too long”

Whatever path we choose it is apparent that the landscape for renting or buying has shifted significantly and currently both are feeling the squeeze in a post pandemic, high inflation environment. The balance between affordability, security and in some cases the real threat of homelessness will continue to be a rollercoaster ride for both options over the coming 12 months.

Stay Safe, Trent Iverson
02 8428 9191 | [email protected]