Sky-high rental costs don’t add up: Is buying a home a better prospect?

As home loan borrowers benefit from the Reserve Bank’s recent 0.25% rate cut, Aussie renters continue to do it tough. 

Proptrack reports that households earning a median income of roughly $116,000 can afford to rent the smallest share of properties in at least 18 years.

This has been driven by surging rents far outstripping income growth since the onset of the pandemic. 

"The current alarming state of rental affordability is a substantial deterioration from conditions before and during the pandemic,” said senior economist and report author, Angus Moore. "Rents nationally are up 48% since pre-pandemic, while typical household incomes have only increased 19% in the same period.

"For lower-income households, renting is essentially impossible." 

Moore says the silver lining for renters is that conditions appear to be improving. 

The numbers remain staggering however.

Typical-income households spending 25% of their income could afford just 36% of rentals advertised on realestate.com.au over July-December 2024, Proptrack says.

Renters in New South Wales and South Australia face the toughest conditions, as typical-income households can afford just 26% and 20% of rentals, respectively.

For households at the 30th percentile of income earning roughly $70,000, almost no rentals (just 2%) would have been affordable over July-December 2024. 

Victoria remains the most affordable state to rent in as a median-income household can afford just over half of all rentals advertised.

Comparing renting to home loan costs

Very high rents might be the reason some young Aussies have turned to the homebuying market, figuring that a home loan cost, while significant, at least secures home ownership.

Consider that in our most recent Mozo Rental Report, Sydney remains the most expensive city to rent a house in, with median weekly rents sitting at $775.

Let’s think about this rental cost against a hypothetical home loan bill. If you convert $775 weekly rent to a monthly cost of $3,100 (775 x 4), this actually isn’t far off what you might pay for a typical mortgage bill per month.

For example, on a $500,000 home loan with 5.80% p.a. interest rate over 25 years, your monthly repayments would be $3,161, as per the Mozo repayments calculator. 

While this isn’t a perfect like-for-like comparison given the other expenses that come with buying a home, including stamp duty, conveyancing and bank charges, it does illustrate that for some people high rental costs won’t make a lot of sense. 

Of course, renting versus buying is a decision for each individual and will depend on your own unique situation. There are risks with buying that include weighing increasing mortgage costs that can come when interest rates and fees go up, and this clearly needs to be considered first.

The comparison is worth a look however. 

At Mozo we make home loan comparison easier. Take the time to compare home loans right here to find something that suits your needs.