Is Buying Cheaper Than Renting?

To rent or to buy - Is there really a cheaper option? Here’s everything you need to know.

A recent report from realestate.com.au suggests that it’s cheaper to buy than to rent more than half of all properties in Australia.

Certainly, with fixed loan interest rates available at 2.0% or below, and no real change expected until 2024, mortgage repayments are often lower than the rent you would pay for the equivalent property.

But is that the only thing that should go into the calculation? No.

Costs of home ownership

Home owning comes with additional costs as compared to renting. These include:

• Council rates
• Strata fees if you buy a strata title property
• Repairs and maintenance
• Water and sewage costs

Buying (or building) a house also comes with additional upfront costs. If you’re not a first home buyer, you’ll be paying stamp duty. You’ll also need to budget for conveyancing costs, loan application fees and (for an established home) building and pest inspections.

If you rent, you have to take into account the upfront bond of four weeks’ rent.

Once you take the additional costs of home ownership into account, it does cost more upfront to buy rather than rent. However, even modest price growth can offset that extra money.

Use our Rent Affordability Calculator to determine your monthly rent budget based on your cost of living.  

Case study

Here’s an example.

A home in Wollert with a median sale price of $510,000 will cost a first home buyer:

• $1,776 in mortgage repayments (monthly)
• $550 (approx) in council rates, repairs and maintenance

Total: $2326/month.

The median rent on the same property is $390/week.

Total: $1560/month.

So renting is cheaper, right? Not necessarily.

In the first few years, buying is always more expensive. However, if you lock in a fixed home loan, your mortgage repayments will stay the same. If you rent, the rental price will go up.

If you own the home, you will also be building equity as the home increases in value.

Realestate.com.au analysis indicates that buying a house in Wollert will save you $266 per month over the next 10 years, as relative to renting. It’s safe to assume that the difference only widens from there as rental prices rise.

Additional ways to save

The calculation takes into account home owner costs, rental payments and a modest (3%) return on capital growth. However, there are even more reasons why buying is cheaper than renting in the long term.

You can make modifications to the home that allow you to save on running costs. Home owners can add solar panels, invest in double glazing, or lay flooring that insulates against drafts. If they’re building a new house, they’ll also enjoy new, and therefore energy-efficient, appliances which save on running costs. Renters are rarely able to take advantage of the same benefits, since it would mean extra outlay by landlords.

Where buying is cheaper than renting

The analysis indicates that buying is cheaper then renting a huge 56.8% of all Australian dwellings. Generally speaking, it is more likely to be cheaper to buy in regional areas and the outer suburbs of capital cities. Renting is cheaper in the inner cities, especially in Sydney and Melbourne. In Victoria, Carlisle Homes builds in three suburbs where it’s the cheapest to buy (relative to renting):

• Rockbank
• Mickleham
• Wollert

Learn more about where we build here

The cheapest to rent (relative to buying) are inner city prestige suburbs such as:

• Toorak
• East Melbourne
• Main Ridge
• Red Hill South
• Deepdene

Of course, saving a deposit is still the biggest hurdle for first home buyers. This analysis presumes that you have been able to come up with 20% of the purchase price, which may not be possible for all buyers.

However, if you do have the savings, or you can take advantage of government incentives or parental help, this may still be your best opportunity to secure your own place for the future. Discover ten budgeting tips and tricks here.

Because Carlisle understands that you need to budget with confidence, we work with trusted land developers to offer a fixed price house and land package for all first home buyers. No hidden extras, no additional costs. You’ll know exactly how much you need to budget, with no nasty shocks at the end.