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Renters and aspiring homeowners have been given fresh insight into an age-old dilemma – whether it might be better to rent or buy.
Domain Group has compiled data comparing rental and mortgage payments across the nation’s capitals that show the answer can depend on location as much as bank balance.
Reviewing suburbs that had a minimum 50 rental and sale observations in the year to April, Domain compared weekly mortgage repayments on a median sale price to median rent, both for houses and units.
Domain research analyst Eliza Owen said the mortgage rate used was an average owner-occupier rate, which took into account last week’s rate cut.
But the figures did not include additional housing expenditure like transfer duties, municipal rates and maintenance costs. It assumed a 20 per cent deposit.
“While a lower mortgage rate will reduce serviceability costs on a loan, lower mortgage rates typically inflate house prices, so it will take longer to save the deposit and add a price premium to own,” she explained.
Research found that, overall, the more expensive the suburb, the higher mortgage repayments were relative to rent.
“I think some first-home buyers will find the data search empowering,” Ms Owen said.
It’s a good reference point for people to get a sense of what home ownership feels like week-to-week, to help them see beyond the deposit hurdle.”
Ms Owen said the research could prove helpful for investors, too, when hunting for the right combination of price and location.
“Anywhere there is potential for rents to outstrip mortgage repayments, there is the option to invest in a positively-geared property,” she said.
But Ms Owen said the data had also highlighted regions where renters were facing further barriers in achieving home ownership.
“In areas where there are high rates of rental occupancy, renters can be paying more due to high demand in their suburb. It can become a difficult cycle to break out of.”
Domain compared rent and mortgage repayments across 42 per cent of Greater Sydney and found there were no suburbs where it was cheaper to pay down a mortgage on a house than to rent one.
When it came to units, Lakemba, 15 kilometres south-west of the CBD, was the only suburb where buyers were better off than renters – and that was by just a single dollar a week, $369 versus $370, based on median observations.
“Lakemba is a really interesting area,” Ms Owen said, “because the suburb is a natural extension of the trendy inner west. It is culturally diverse and thriving with small businesses, presenting a great opportunity for those that would rather live in their own place than rent.”
Ms Owen said there were about 16 suburbs in the Greater Sydney region where households could consider increasing their weekly housing spend by up to $100 to take on a mortgage.
“Most of these are on the north part of the Central Coast, such as Blue Haven, where mortgage repayments on a typical house are just $35 more than median asking rents,” she said.
Units in Sydney’s wider west were also more achievable for would-be buyers, with Granville’s average mortgage figure of $425 up just $5 on a rental payment of $420, while Mount Druitt renters could potentially save $9 a week switching to a weekly mortgage payment of $339. In Guildford, there was a $15 difference.
“Areas where it is much more expensive to own are more exclusive, high-end suburbs such as those in the city and eastern suburbs, and on the north shore,” Ms Owen explained.
The highest discrepancy was measured in Vaucluse, where an average mortgage repayment of $5554 far exceeded weekly rent of $1900.
In comparison, Melbourne surprised, with some inner locales proving more affordable for buyers. In the CBD, the data revealed a median weekly mortgage on an apartment could be up to $79 cheaper than comparative rental prices.
“[Postcode 3000] likely sees a premium in rents due to rental competition from international students, holidaymakers and those travelling for business who might take up short-term accommodation,” Ms Owen said. “Meanwhile, typical purchase prices in the suburb have remained subdued, due to high-density, smaller floor plans and relatively high levels of supply.”
Inner suburbs in which it was also cheaper to pay off a weekly mortgage on a unit were Southbank (-$41), North Melbourne (-$22), Windsor (-$21), Collingwood and Carlton (both -$19), Kensington (-$7) and Abbotsford, where homeowners were just a smidge better off with a weekly $3 saving.
In contrast, in affluent suburbs where home-ownership levels are greater, such as Toorak, Malvern, Balwyn and Brighton, mortgage repayments were far higher than weekly rental prices.
“These are suburbs where a weekly mortgage repayment would be over $1000 more than renting, and typical purchase prices average $2.5 million,” Ms Owen said. “Growth in prices has well exceeded growth in rents in these areas over time … likely because people will stop paying a premium on rents at some point where they do not get the benefit of ownership.”
There were 45 suburbs across sunny Brisbane where rents were higher than a typical mortgage – more than any other capital.
Lower socioeconomic regions, such as Logan in the south and Ipswich to the south-west of the city, carried the smallest mortgages on houses. Although some suburbs, like Waterford, bucked the trend.
“In Waterford, ABS data suggests 42 per cent of occupied private dwellings are rentals,” Ms Owen said. “The resultant competition for rentals in the suburb may be contributing to the fact that median rent is $33 more than a typical mortgage repayment.”
Ms Owen said that despite rate cuts improving mortgage serviceability, it was likely that the “deposit hurdle” was hindering potential buyers. “It can be an enormous challenge for many households to achieve a deposit, to even be able to enter into a conversation about renting versus buying,” she said.
In similar fashion to Melbourne, some inner-city suburbs like Bowen Hills, Fortitude Valley and Spring Hill offered buyers the opportunity to buy an apartment for up to $57 a week less than rental rates.
Ms Owen credits this discrepancy to rental competition closer to the city, as well as declining confidence in the Brisbane unit market having held prices relatively low.
Domain accessed data for 60 per cent of Perth suburbs, with 26 of them revealing rental prices surpassed mortgage repayments.
“Interestingly, houses in Perth and West Perth are probably among the more desirable suburbs where it is cheaper to make a mortgage repayment than rent, with mortgages about $20 less,” Ms Owen said.
In Swan View, an average house mortgage would cost homeowners $323 a week, while renters paid $330. In Banksia Grove and Westminster, the difference was just $4 and $2 respectively.
For Mirrabooka in the north-west, the data suggested there was no difference between median rent and mortgage repayments.
“Once again, the higher end of the market generally saw a premium for ownership, such as in Dalkeith and Cottesloe, where multimillion-dollar houses are paid off for about $1200 more than for what they are rented,” she said.
Of the 21 suburbs in the ACT, data for 18 showed units were more expensive to rent than to buy. In fact, in the CBD, renters were paying up to $101 more per week than mortgage-holders.
“A relatively mobile workforce, increased short-term accommodation users and the introduction of land tax has likely contributed to higher rents,” Ms Owen said.
“Similarly to the inner-city suburbs of Melbourne and Brisbane, high levels of unit stock keep prices relatively low.”
A house in the suburb of Ngunnawal, in the district of Gungahlin, some 13 kilometres from Canberra’s CBD, would set buyers back $476 a week on average, just $1 more than a rental.
Renters who have managed to save a deposit could do well in Adelaide’s north, where mortgages on both units and houses were significantly cheaper to service.
Units were cheapest in the suburb of Salisbury, with an average mortgage repayment of $154, or $81 less than the rental rate.
Those hoping to call a house “home” in the South Australian capital were best off hunting in the suburbs of Elizabeth Park, Elizabeth Downs, Davoren Park and Munno Para, where a mortgage would cost buyers between $70 and $76 less than the weekly rent.
Somerton Park ranked as Adelaide’s most expensive suburb for mortgage holders, with weekly repayments of $830 sitting well above average rents of $440.
In the island capital, renters could save just shy of $100 if they switched to home ownership in Bridgewater in the city’s south-east, spending $221 instead of $320 on average.
In New Norfolk, Glenorchy, Sorell, Claremont and Midway Park, houses were also cheaper to buy, with weekly savings of up to $65.
Blue-chip suburbs were more difficult to secure, with renters having to bridge a $222 gap to take on a mortgage in Sandy Bay, and fork out an extra $118 a week to own a house in South Hobart.
Each of the five suburbs Domain was able to analyse revealed good news for potential buyers, with savings to be made across the board.
A house in Muirhead, to the city’s north, showed close to a 50 per cent saving for buyers, with average mortgage repayments sitting at $327, compared to a $630 weekly rental price.
Houses were also cheaper to own in the Palmerston region, where the suburbs of Gunn and Durack recorded savings of $67 and $11 a week, respectively.
When purchasing a unit in Darwin City or Larrakeyah, would-be buyers could pocket up to $84 a week in savings.
This article was first published on Domain.