Error message
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityAPIController->load() (line 219 of /srv/www/drupal7/sites/all/modules/entity/includes/entity.controller.inc).

The benefits of home ownership extend far beyond capital growth

The benefits of home ownership extend far beyond capital growth
The benefits of home ownership extend far beyond capital growth

In July, economists Ryan Fox and Peter Tulip delivered a paper for The Reserve Bank which looked at the broad question: is Australian housing overvalued?

It found that Perth residents who bought a property during the 2005-2007 boom would have to hold it for three decades before the investment worked out cheaper than renting for the same period.

The RBA research also revealed that the surge in prices over the past decade had made renting more economically sound than buying.

Value equation

Although the researchers found long-term that prices were generally “fair value”, they also looked at whether people were better off buying or renting and discovered that the boom of seven years ago had significantly changed the equation.

They took into account all the costs of buying and running a house, including interest rates and depreciation, and the expected increase in value home owners hoped to get on their property.

Between 1955 and 2014, owning a home was less expensive than renting within about eight years. But over the past decade when prices in Perth more than doubled, those who bought have gone backwards relative to those who decided to rent.

Research data

“If real appreciation over the previous 10 years is used as a guide, buying is less expensive than renting only with extremely long expected tenure – in excess of 30 years,” the researchers found.

“Consistent with conventional wisdom, households expecting to move again in a few years time are better off renting, unless they believe they can sell the property for an unusually large capital gain.”

House prices in Perth have climbed 120% since early 2004 and rents have climbed 81%.

Capital gains since the start of this year have slowed a little, with preliminary REIWA data showing the metropolitan median price in Perth down by one per cent in the June quarter and up by a modest 3.8%t on the same time last year.

Advantage

The main benefit with buying is the long-term capital growth that comes from owning a quality asset which is tax free, given the absence of capital gains tax on the family home.

Home ownership is also a huge advantage in retirement when most people have diminished earning capacity and survive on low and fixed incomes, such as the pension.

Australian research shows that pensioners who don’t own their home can spend up to 60% on their income on rent, pushing them into housing poverty.

So while only very long-term home ownership is the more affordable strategy, it provides the best outcome for people in their latter years.

Personal benefits

Another benefit of buying over renting was the ability to paint, decorate and renovate as you like, as well as shaping the garden.

There are some personal and psychological benefits to buying that go beyond money.

It’s also a lifestyle improvement for many people and can provide a sense of security that isn’t always possible in the rental system.

In spite of the recent report from the RBA, I don’t know many people who would strongly agree with the findings.

I think most tenants aspire to home ownership and I can’t see that changing much for the time-being.

While it’s true that long-term renting is far more common through Europe and the US, I think social, cultural and economic conditions are different enough in Australia to still nurture the strong desire for home ownership among those who can secure a mortgage.

David Airey

David Airey

David Airey is president of the Real Estate Institute of Western Australia.

Tags: 
David Airey Strategy

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?