Where in Australia it's cheaper to pay off a mortgage than rent

It’s now cheaper to buy rather than rent well over a third of the properties in Australia, the latest figures have found.

Before COVID-19, it cost less to service a mortgage than to pay rent for slightly over a third of the market, but now that margin has widened considerably, according to the latest data from CoreLogic.

The major exceptions, however, are Sydney – where a staggering 95.1 per cent of homes are cheaper to rent – and Melbourne, just behind at 92.7 per cent, largely as a result of rapidly rising prices.

“Whether or not this is good news depends on the area you are in,” said CoreLogic’s Australia head of research, Eliza Owens. “The comparison of rental and mortgage costs has been exacerbated across regional Australia by the dynamics we’ve seen from COVID-19.

“Rental rates have gone up remarkably with less migration away from the regions and often more into them, and rental markets there are tight. At the same time, mortgage rates have come down from 3.2 per cent in February last year on average to around 2.4 per cent now. So lower mortgage costs and higher rents across regional Australia have produced quite a remarkable result.”

Nationally, it’s now cheaper to buy than to rent 36.2 per cent of Australian properties, up from the 33.9 per cent found in February 2020, which has been caused largely by the historic fall in interest rates.

“It’s hardly surprising that homes in so many areas are now cheaper to buy than to rent with so many parts of the country now having rental vacancy rates at near to zero, and rents rising so fast,” said Adrian Kelly, the president of the Real Estate Institute of Australia.

“But now with so many government schemes in place to help people to buy, and record-low interest rates, then it could be a very good time to buy.”

The findings are likely to provide a boost for first-home buyers, particularly outside Sydney and Melbourne, who are wondering whether it’s worth continuing to hunt for property or to give up and rent long-term instead.

“There’s just never been a better time to bite the bullet and buy,” said Terry Ryder of hotspotting.com.au. “If you’re renting a place for $500 and you find you could buy a similar place for $400, then you’re both saving money and buying a long-term asset. Hell, why not?”

But the real buying bargains are being found far from our two biggest cities, mostly in regional areas, well away from where the vast majority of potential purchasers are looking. The only cities, for instance, where there are more homes that are more affordable to buy than to rent are Darwin, Perth and Hobart.

The standout area where homes are better to buy rather than rent is regional Northern Territory, where 96.4 per cent of properties are cheaper to buy than to rent. The number is 86.5 per cent in Darwin.

“But the big question is, are those the areas where most people want to buy homes and live?” asked Alan Hemmings, CEO of homeloanexperts.com.au. “Given that most people want to live in Sydney or Melbourne, then they’ll only have a few suburbs to choose from where housing might cost less to buy than rent.

“In both, they’d have to travel further and further out. But with COVID-19 and remote working, those suburbs may be more attractive than they were, and similarly, if people can work from home and live in a different city or region.”

The regional areas of South Australia and Western Australia also have a huge proportion of housing that costs less in mortgage repayments than it would in rent, at 79.4 per cent, where regional Queensland had lots of good buys at 73.1 per cent, and Tasmania, outside the main cities, at 71.4 per cent.

Three other cities besides Darwin also have a majority of properties that would work out – using a set of mortgage assumptions, valuation estimates and likely rents – to be a better buy than a rental. Perth has 59.6 per cent of its homes that are cheaper to buy than to rent, Brisbane has 55.3 per cent and Hobart 50.2 per cent.

Meanwhile, in regional NSW 48.2 per cent of the properties are cheaper to buy, in Adelaide 47.4 per cent, and in regional Victoria and the ACT 43.6 per cent.

Against this, the figures only remain valid while mortgage rates stay the same, Mr Hemming points out. “And it’s often a question of supply and demand too. The lack of supply in some of the most popular places are forcing prices up and making it more expensive to buy.”

Investors may also be heartened by some of the figures in the latest study, SQM Research managing director Louis Christopher suggested.

“For investors, it’s enticing to get into the market where it’s cheaper to buy than rent, as their rental yields will be higher as a result.”

In Melbourne, the west has the most homes that are cheaper to buy than to rent, at 5.9 per cent, and the inner east at 4.9 per cent. In Sydney, the south-west sits at 10.6 per cent, and Parramatta at 10.5 per cent.

In regional Victoria, a massive 87.1 per cent of homes in the north-west are cheaper to buy than rent, and 78.7 per cent in the Shepparton region. In regional NSW, the top places to buy are the Far West and Orana, at a huge 89.1 per cent, and New England and the north-west at 87.4 per cent.