The Sun-Herald got it wrong from the very beginning, with the headline to Lisa Carty's article declaring 'IT'S OFFICIAL: CHEAPER TO BUY THAN RENT'. On Bizarro World maybe, but not in Sydney.
(Bizarro World. Copyright DC Comics.)
To test the Sun-Herald's assertion, I've taken the median sale price figures from the Rent and Sales Report and run them through the Commonwealth Bank's on-line mortgage calculator, and compared the results with the median rents for the same quarter (kindly provided on special request by Housing NSW). After allowing for $14 000 from the First Home Owners Grant and Boost and a 10 per cent deposit, the cost of repaying a 25-year loan for the median sale price is, at current rates, higher than the median rent everywhere in Sydney - with one single exception.
Our first two graphs compare loan repayments and rents for 'non-strata' and 'strata' dwellings (the rents data refer to 'houses' and 'flats', which is roughly the same distinction) for the Sydney Statistical Division, the 'rings' of Sydney local government areas, and New South Wales generally.
(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)
Our next graphs go down to the level of Sydney local government areas, starting with the inner ring LGAs.
(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)
(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)
And there's the single exception: Canterbury LGA, where the loan repayments for a median-priced flat are slightly ($8 per week) less than the median rent. But then again, this comparison does not include other costs of ownership such as repairs, strata fees and council rates, which will be rather more than $8 per week, so tenants in Canterbury LGA flats would actually pay less than owners.
And finally, the outer ring LGAs.
(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)
Everywhere in Sydney owning is more expensive than renting, including Canterbury LGA when you factor in the other costs of ownership. That headline, 'IT'S OFFICIAL' – it's rubbish.
There certainly is a problem with rising rents and a tight rental market. But as we've discussed previously, care needs to be taken with Rent and Sales Report data, because it does not refer to what all tenants are paying – just those tenants who started new agreements in the relevant quarter. And also as discussed previously, the dollar amount of 'new agreement rents' is higher than that of 'established rents', and for some time now they have been increasing at a higher rate, too.
I say care needs to be taken, because there's a risk of talking up rents; that is, landlords may be encouraged to increase excessively rents for established tenancies, and tenants may be discouraged from challenging excessive increases.
And, with respect, more care should be taken by Minister Borger, who on Sunday was trying to drum up business for property vendors by, on the one hand, urging that it is 'time to buy' and, on the other, by picking the most alarming rent figures and generalising them. So, his grim observation
"if you're in a place like Western Sydney, where rents have gone up in some cases by 20 per cent..."is actually based only on the data for two-bedroom houses in Penrith, two-bedroom flats in Fairfield, and one-bedroom flats in Holroyd (the median 'new agreement rent' for this last category actually increased 19.5 per cent for the year, but that's close enough to 20 per cent).
This sort of statement really is a misrepresentation, and tenants suffer for it. We've come to expect it from the real estate industry, but not the Minister for Housing.
Can you do a comparison showing how much you have earned/saved by renting and investing/saving the repayment minus rent difference? Because after 25 years (a long time I know, but who plans on not living that long?) at least you outright own a home and never have to pay rent again and your kids can live with you if they need to.... whereas renting you need to have something to show for the delta.
ReplyDeleteSorry, Anon, that sort of calculation is beyond the scope of what I was really concerned to do here - that is, rebut the 'it's cheaper to buy than rent' hype.
ReplyDeleteThe calculation you suggest would involve making estimates of movements in median house prices, less movements in loan rates, balanced against the interest (or some other type of income) derived from the money renters save by not paying for ownership, less movements in median rents, all over 25 years!
Also, I should say that I'm not arguing that people should forget about ever buying a house to live in. I'm just saying that at the moment, houses are - still - really very expensive to own. They should be cheaper. The recession will make them cheaper; another better way is for governments to set tax and finance policies against house-price speculation.
All well and good, however a simple comparison between mortgage repayments and rent does not take into account that at the end of the 25 year period the home owner has a asset, the value of which (in a healthy economy) will have increased in value over the period. The renter will have their accumulated savings, mitigated by tax and inflation. This is not to say that the renter would definitely be worse off, but any useful model must try to take these factors into account, and since the work here has not, its conclusions are overly simplistic and ultimately misleading.
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