01.Renting will be the cheaper option if the market heads south
A discussion paper released by the Reserve Bank of Australia says it costs about the same to own or rent a home in the current market.
The report, "Is Housing Overvalued?", also disputes the idea that overvaluation has led to a housing bubble, despite reports to the contrary.
A 2013 OECD report found that house prices in Australia were overvalued by 37%, and a 2013 story in The Economist said house prices were 46% too high. But RBA researchers Ryan Fox and Peter Tulip say both analyses - which compared price-to-rent ratios to their long-term averages – were incomplete.
"Potential home buyers look not just at the price of a house, but also at interest rates, running costs and other elements of the user cost of housing."
New data yields different story
The RBA researchers say they combed through a new dataset matching buying prices with rents for "a large representative sample of properties". The aim was to compare "the financial cost of renting a home with the cost of owning a similar dwelling, where the latter depends on the purchase price, interest rates, repairs, council rates and so on".
Renting and buying may be financially equivalent at the moment, but buying could be a bad idea if recent trends don’t continue. If housing prices stop growing at their historical pace, "the average home buyer would be financially better off renting", the RBA says.