Is declining housing affordability making renting a more attractive option?

Written by in Property News on December 15, 2011

Household Income contributed to home loan and paying rent - NSW, VIC, QLD, WA 2011.

It’s the age old question – are you better off buying or renting? While there’s a host of arguments for and against each alternative, one thing is clear – renting is now a much more attractive option than it was 10 years ago.Rent vs Buy

Looking at trends over the last 10 years the proportion to rent has remained relatively flat but the proportion to buy has skyrocketed with growth in house prices often surpassing that of average household incomes. In 2001, 25% of the average weekly family income went to paying off a home loan vs. 22% to rent. In 2011, the figure is now 35% to buy vs. 25% to rent (on a national basis).

The data paints a different story for each state. Here are our observations:

New South Wales
Historically, NSW has always been the least affordable city to buy and rent. This trend has continued to the present day, with the state in the grip of a housing shortage fueled by a recent population boom driven by an influx of migration in recent years. Despite having the third lowest weekly family income in the nation, home buyers in NSW pay the highest proportion of income to buy (a whopping 39%) as well as the highest proportion to rent (27%).

Victorians are faring marginally better with 35% of the average income going to loan repayments and a reasonable 23% to rent. But times are nowhere near as good as they were in 1998 where for a short period it was cheaper to buy than rent.

After enjoying a long run of comfortable levels of housing affordability up until 2001, Queenslanders have felt the impact of strong population growth over the past 10 years. This has been driven by high demand for property due to interstate migration along with strong growth in the tourism industry. In 2001 only 23% of the average family income went towards home loan payments, in 2011 the figure has soared to 33%.

Western Australia
In WA, home ownership has typically been much more expensive but even more so since the mining boom in 2005 at which point wages did increase but in comparison, property prices spiked disproportionately. The percentage of income required to buy increased from a manageable 26% to 34% within the space of two years (June 2005 to June 07).

Since house prices took a major hit during the GFC in late 2008, Tasmanian’s have enjoyed some brief periods where buying your own home was more affordable than renting. With the market in Hobart facing tough times this year potential buyers are well placed to enter the market.

South Australia
With the second lowest income in the nation, home ownership is out of reach for many South Australian’s having to fork out 33% of their income to pay off their loan. Payments going toward home loans in SA ($292 per week) are on par with repayment levels in QLD, WA and ACT despite average family incomes being at least 27% below the level in these states.

Northern Territory
With the highest rental yields in the nation, home owners in NT one of the few states where buying a property is more affordable than renting. With resource projects encouraging interstate migration to the state coupled with low supply, rental properties in the region are attracting very strong levels of demand.

Australian Capital Territory
ACT is the obvious outlier amongst each state where traditionally buying has always been more affordable due to the high demand for rental properties. This can be attributed to the large number of public servants and university students taking up temporary residence in Canberra and is reflected in rental rates being amongst the highest in the country ($450 per week average), second only to Darwin ($526). With only 17% of the average family income (the highest in the country) going to loan repayments home owners in Canberra are faring well in comparison with other cities feeling the pinch of increasing house prices.

Looking ahead
Welcome news for renters is that rental affordability across the nation has remained fairly consistent over the years compared to the volatile movements in the housing market. However with a growing population and many first home buyers being priced out of the market, only time will tell if this trend will hold true in years to come.