Aussies Stuck on Property Rental Roundabout

Written by in Property News on April 23, 2014

rental property cycle operates much like this round about

Speculation of a housing bubble and the state of Australia’s housing affordability reached new heights last month following further price increases across the country. REIV data shows Melbourne led the surge, recording the strongest growth out of all the capital cities at 13.7% for the year.

As a buyer, it can be easy to get swept up in the media headlines. First-home loans are at a record low; affordability has plagued buyers with the recent growth in house prices, while investors are entering the market in droves.

But what if you’re a renter?

A report released today by shows the dream of a white picket fence could be a thing of the past, with many Australians stuck on the rental roundabout.

The Housing Sentiment Report – examining the lifestyle preferences and affordability concerns of over 1200 buyers and renters – shows one third of tenants have been in the rental market for five-plus years, with affordability a major deterrent to entering the market.

We asked the often ‘forgotten’ property hunters – renters – what is preventing them from buying, and learned that we are breeding a nation of renters:

  • Half of renters believe they can’t afford a deposit
  • 32% believe they can’t afford mortgage payments
  • 28% of renters say they haven’t bought a property because they can’t afford to buy where they want to live
  • 25% think the market is overpriced
  • 22% believe it’s cheaper to rent
  • 18% have difficulty obtaining finance
  • 16% don’t want to be tied down to one place because of a mortgage
  • 12% have already bought an investment property

Is the Great Australian Dream out of reach?

The findings paint an interesting picture of where our future is trending – the Great Australian Dream of home ownership is fading for a significant percentage of the population either because they feel unable to obtain and manage a mortgage, or because it’s too expensive to buy into the area they rent in.

The latter point is an interesting one. It’s not just price getting in the way of renters, but also their lifestyle expectations.

According to search data collected from users, the top 20 most searched suburbs to rent in Victoria over the past six months were predominantly inner-city and affluent mid-suburban areas including Richmond, South Yarra and Hawthorn. The current weekly median rent in Richmond is $500 for a 2-bedroom unit and $700 for a 3-bedroom house. In contrast, the weekly mortgage payment in this area is around $961 for a median priced unit and $1457 for a median priced house.

So what can you do if you want to get off the rental roundabout?

  • Consider investing: Buying an investment property can be an affordable way to enter the market due to the rental income offsets. It also means you can continue renting in your preferred area without missing the property boat. In fact our report revealed that for some renters, becoming an investor is proving a more viable alternative for getting a foot on the property ladder. Of those who have bought investment properties, 44% say they chose this tactic because they make more money from the rental income and/or negative gearing benefits. A further 38% say they’re renting while investing in cheaper properties because they can’t afford to buy in the area they want to live.
  • Bank on mum and dad: If you’re in a position to ask your parents for support to get you over the first hurdle, why not do so? They’re more likely to have already built wealth through property so it may not make a huge dent in their funds. A larger deposit saves you paying costly mortgage lenders insurance – and you can always pay your parents back in a few years as your wealth grows. You won’t be alone – our survey showed nearly one in five Aussies rely on their parents either through borrowing money, living with them or using them as a parental guarantor.
  • Adjust your expectations: If investing or asking mum and dad for help isn’t an option, lowering your expectations might be the next best thing. Few people live in the first home they bought forever, so moving to a more affordable area in the short term can be a great way to set you on the path to long term success.

Download the full Housing Sentiment Report March 2014

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