Renting sometimes makes economic sense

Renting beats buying 60 per cent of the time in Sydney, research says | GRAPHIC: Check your suburb

Real estate agent Laura Cipollone, who rents in Balmain, says timing is everything. Picture: John Feder

Renting a home should not be seen as “dead money”, with research from EY finding that in the country’s most unaffordable market — Sydney — renting was a better financial choice than buying 60 per cent of the time.

EY chief economist Jo Masters and Sydney managing partner Andrew Price said while market timing and the amount borrowed were critical, the research opened the debate on whether home ownership should be an overriding aspiration for Australians.

“We would caution against just assuming that home ownership is the only way to create future wealth,” Ms Masters said.

MORE: How steep is this housing cliff, asks James Kirby

“It’s time to give up on the mindset that renting is dead money. Yes, when you’re paying rent to a landlord, you’re not investing in an asset that you own, but with today’s property prices you could be better off renting somewhere affordable and investing the cash you’ve saved.”

The group created a research model where two people looking for a home were given the same starting capital. One bought a home, borrowing 80 per cent of the purchase price, the other rented in the same suburb and invested in an ASX200 index fund, borrowing half the invested amount and reinvesting the dividends.

EY then looked at the net wealth of the two people 10 years later, comparing 43 Sydney local government areas between 1994 and 2017.

Are renters or homeowners better off in your suburb? Check the map

The Safe as Houses research found timing was critical, with renters better off if they moved in between 1997 and 2005, while buyers came out better if they had bought 10 years before the peak of the Sydney housing market from 2106 to 2018.

Renters fared best in Sydney’s inner ring suburbs of North Sydney, Mosman and Leichhardt.

For home owners, the biggest gains were in Woollahra where buyers came out $303,771 ahead if they purchased in 2007 and sold in 2017, but those who bought in 1998 and sold in 2008 were $608,032 worse off than renters.

The research found that renting was the better option in 62 per cent of the comparisons.

However, in terms of attitudes, the EY Sweeney research found that two out of three Sydney residents believe that renting was a waste of money.

Laura Cipollone and her partner rent an apartment in Sydney’s inner harbourside suburb of Balmain. The couple are currently happy renting, with investments in the sharemarket and an investment property, and they are also able to save $2000 a month, though they expect to buy a family home in the suburb.

“Timing is everything,” said 30-year-old Ms Cipollone, who works as a real estate agent for The Agency. “Short to medium-term an index fund makes sense, but over the long term property is a safe option.”

In Australia, about one-third of people rent, a third own their home outright and a third are paying the home off, with Ms Masters noting that home ownership rates in Australia are falling.

EY called for tenancy reform to provide greater stability.

While the lack of housing affordability was underlying this trend, there were lifestyle reasons for renting that were moving Australia more in line with other global cities, she said.