House Buying versus Renting


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Is it better to rent a house in Australia, than it is to buy a house ?

With the comparison between rental costs and mortgage repayments at the moment, the above is a very valid question. Many people can see that renting is so much cheaper.

A $350,000 house currently costs about $600 per week in mortgage repayments, (based on a 100% mortgage), but a tenant would only pay about $350 pw in rent for it. (on average)

If you compare these figures against the average Australian wages, you get the following:

Year Mortgage Mortgage as % of Income Rent Rent as % of Income Gross Income
1 $601.12 24.40% $350.00 14.21% $2,463.80
2 $601.12 23.41% $364.70 14.21% $2,567.28
3 $601.12 22.47% $380.02 14.21% $2,675.11
4 $601.12 21.57% $395.98 14.21% $2,787.46
5 $601.12 20.70% $412.61 14.21% $2,904.53
6 $601.12 19.86% $429.94 14.21% $3,026.52
7 $601.12 19.06% $448.00 14.21% $3,153.64
8 $601.12 18.29% $466.81 14.21% $3,286.09
9 $601.12 17.56% $486.42 14.21% $3,424.11
10 $601.12 16.85% $506.85 14.21% $3,567.92
11 $601.12 16.17% $528.14 14.21% $3,717.77
12 $601.12 15.52% $550.32 14.21% $3,873.92
13 $601.12 14.89% $573.43 14.21% $4,036.62
14 $601.12 14.29% $597.51 14.21% $4,206.16
15 $601.12 13.72% $622.61 14.21% $4,382.82
16 $601.12 13.16% $648.76 14.21% $4,566.90
17 $601.12 12.63% $676.01 14.21% $4,758.71
18 $601.12 12.12% $704.40 14.21% $4,958.57
19 $601.12 11.63% $733.98 14.21% $5,166.83
20 $601.12 11.17% $764.81 14.21% $5,383.84
21 $601.12 10.72% $796.93 14.21% $5,609.96
22 $601.12 10.28% $830.41 14.21% $5,845.58
23 $601.12 9.87% $865.28 14.21% $6,091.09
24 $601.12 9.47% $901.62 14.21% $6,346.92
25 $601.12 9.09% $939.49 14.21% $6,613.49
26 0 . $978.95 14.21% $6,891.26
27 0 . $1,020.07 14.21% $7,180.69
28 0 . $1,062.91 14.21% $7,482.28
29 0 . $1,107.55 14.21% $7,796.53
30 0 . $1,154.07 14.21% $8,123.99
31 0 . $1,202.54 14.21% $8,465.20
32 0 . $1,253.05 14.21% $8,820.73
33 0 . $1,305.67 14.21% $9,191.21
34 0 . $1,360.51 14.21% $9,577.24
35 0 . $1,417.65 14.21% $9,979.48

You will see that at about year 14, the renter begins to pay a higher portion of income for the accommodation, than the buyer.


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The buyer has effectively paid extra, in the early years, to cover accommodation costs in retirement.

The above takes no account of capital appreciation.

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The above is based on the following:

A joint income of 1 Male full time and 1 Female full time, using ABS average wages at Aug 2009, the couples combined gross weekly wage would be $2,463.80 in NSW.

These income groups have had an average annual increase of 4.2% between 1994 and 2009, so my figures assume this same growth continues.

I have assumed that rent increases at the same rate as wages.

I have assumed that Mortgage Interest rates average 7.59%, which is the average for the 15 years ended Oct 2009.

A further set of figures show the annual amount spent out over a period of time, by the Renter and the Home Owner.

These figures show that for a 27 year term, it may well be better to rent, but after 27 years the buyer will begin to get ahead of the renter, who will continue to have to pay for accommodation.

Year Renters Annual Cost Buyers Annual Cost Renters Total Buyers Total
1 $15,600 $31,258 $15,600 $31,258
2 $16,255 $31,258 $31,855 $62,516
3 $16,938 $31,258 $48,793 $93,775
4 $17,649 $31,258 $66,442 $125,033
5 $18,391 $31,258 $84,833 $156,291
6 $19,163 $31,258 $103,996 $187,549
7 $19,968 $31,258 $123,964 $218,808
8 $20,806 $31,258 $144,770 $250,066
9 $21,680 $31,258 $166,451 $281,324
10 $22,591 $31,258 $189,042 $312,582
11 $23,540 $31,258 $212,581 $343,841
12 $24,528 $31,258 $237,110 $375,099
13 $25,559 $31,258 $262,668 $406,357
14 $26,632 $31,258 $289,300 $437,615
15 $27,751 $31,258 $317,051 $468,874
16 $28,916 $31,258 $345,967 $500,132
17 $30,131 $31,258 $376,098 $531,390
18 $31,396 $31,258 $407,494 $562,648
19 $32,715 $31,258 $440,209 $593,907
20 $34,089 $31,258 $474,297 $625,165
21 $35,520 $31,258 $509,818 $656,423
22 $37,012 $31,258 $546,830 $687,681
23 $38,567 $31,258 $585,397 $718,940
24 $40,187 $31,258 $625,584 $750,198
25 $41,875 $31,258 $667,458 $781,456
26 $43,633 nil $711,092 $781,456
27 $45,466 nil $756,557 $781,456
28 $47,375 nil $803,933 $781,456
29 $49,365 nil $853,298 $781,456
30 $51,439 nil $904,737 $781,456
31 $53,599 nil $958,336 $781,456
32 $55,850 nil $1,014,186 $781,456
33 $58,196 nil $1,072,381 $781,456
34 $60,640 nil $1,133,021 $781,456
35 $63,187 nil $1,196,208 $781,456
36 $65,841 nil $1,262,049 $781,456
37 $68,606 nil $1,330,655 $781,456
38 $71,488 nil $1,402,143 $781,456
39 $74,490 nil $1,476,633 $781,456
40 $77,619 nil $1,554,251 $781,456
41 $80,879 nil $1,635,130 $781,456
42 $84,275 nil $1,719,405 $781,456
43 $87,815 nil $1,807,220 $781,456
44 $91,503 nil $1,898,723 $781,456
45 $95,346 nil $1,994,070 $781,456
46 $99,351 nil $2,093,421 $781,456
47 $103,524 nil $2,196,944 $781,456
48 $107,872 nil $2,304,816 $781,456
49 $112,402 nil $2,417,218 $781,456
50 $117,123 nil $2,534,342 $781,456
Total $2,534,342 $781,456

If you expect to live for more than 28 years, it looks like renting would be dead money. Unless you have other reasons for renting, such as the need or desire to move around a lot.

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