Rental crisis bites but there are suburbs where it's cheaper to buy than rent

In just three years the rental market has gone from soft to brutal, forcing a third of Australians into financial stress and many others into moving deeper into city outskirts or choosing to stay put in an apartment instead of a house.

Rents have skyrocketed 26 per cent nationally since the start of the pandemic and in many areas that figure is closer to 50 per cent. Vacancy rates sit below 1 per cent in numerous capital cities, with a healthy market needing three times as many available rental properties than exist now.

It’s little wonder that renters are going to great lengths to get a foot on the property ladder.

The catch-22 of this is that the influx of buyers has now arrested the property price declines prevalent throughout 2022 and prices are now marching upwards across the country, both regionally and in the cities.

While paying off a mortgage is usually more expensive than renting, that balance is shifting as rents soar and a new report reveals 17 suburbs around Australia where it is now cheaper to buy than rent*.

Jim Malamatinas, Director of A Game Property Advisory who commissioned the independent report, said record levels of migration expected in this year alone would only continue to exacerbate rental market woes.

“I believe there’s a good opportunity over the next six months to purchase a property at a competitive price – with the help of various grants available - instead of continuing to rent and paying someone else’s mortgage. 

“Rental demand is at its all-time high, with the worst rental crisis in almost 20 years and tenants are relying on private landlords to help solve the problem as soon as possible but many can solve it for themselves by taking advantage of Government assistance and buying now,” he said.

While Mr Malamatinas pointed out that schemes differ across each state and territory, a Federal scheme accessible across Australia known as the First Home Guarantee scheme can decrease the significant barrier of a 20 per cent deposit to as low as 5 per cent.

The budget has also updated the scheme to allow more Australians to access the scheme.

RBA boss: Get a flatmate or live with parents

For those not able to buy or unwilling to consider buying in the aforementioned listed suburbs, the outlook is not particularly bright.

Reserve Bank of Australia’s Governor, Philip Lowe, this week told a Senate Estimates hearing in Canberra that the outlook for rent inflation had strengthened, by which he means worsened for renters. He put it down to the strength in recent economic data and the upward revisions to population growth.

He says an increase in housing supply is needed, but higher interest rates will help to alleviate some rental pressures in the short term by forcing people to “economise” on their housing.

“The way that this ends up fixing itself, unfortunately, is through higher housing prices and higher rents,” Dr Lowe said.

“Because as rents go up people decide not to move out of home, or you don’t have that home office, you get a flatmate.

“The increase in supply can’t happen immediately, but higher prices do lead people to economise on housing. 

“That’s the price mechanism at work; we need more people on average to live in each dwelling, and prices do that,” he said.

Plea to government for affordability measures

For renters, first home buyers and those struggling to meet mortgage repayments, 11 interest rate rises in 12 months have wrought havoc.

The number of homes advertised for sale fell further in May.

The flow of fresh listings was 13.1 per cent below the previous five-year average across the combined capitals and 18.0 per cent lower across the combined regional areas of Australia, according to CoreLogic.

Every capital city apart from Darwin and Canberra is recording a new listings trend that is below the previous five-year average.

Total listings are also trending lower as buyer demand outstrips the flow of new stock on the market.

The dire plight of so many households has prompted the Finance Brokers Association of Australia (FBAA) to call on the Federal Government and regulators to take decisive action – including cracking down on secretive bank practices – to ease the enormous financial and mental health pressures Australians.

The association’s recently commissioned 2023 Australian mortgage and rental affordability survey found that a large percentage of Australians with a mortgage and who are renting are being forced to make major financial sacrifices, sell assets, take on additional work, and move to cheaper properties, while a growing number are seeking mental health assistance as a direct result of interest rate stress.

API Magazine’s own 2023-Q1 Property Sentiment Report found that 43 per cent of more than 1,000 respondents were in mortgage or rental stress, with a staggering 81 per cent of those households having fallen into that state within the past year.

In a letter to the Federal Treasurer and Minister for Financial Services, FBAA Managing Director, Peter White AM, wrote, “we believe the number and size of these rate rises over such a short timeframe could result in even worse economic and social outcomes than the problem the RBA was attempting to address.”

* Suburbs in each capital city were selected based on the following criteria:

1. Monthly rent to income ratio 30 per cent or less
2. Monthy mortgage repayment is less compared to the rent per month
3. 20 per cent deposit is contributed leaving a 80 per cent loan to value ratio
4. Distance to the CBD/capital city is within 50km (120 km for Victoria and NSW)
5. Rent increases have been 5 per cent or higher in the last 12 months
6. Suburb 10-year average annual growth has been greater or equal to 5 per cent.