More Australians are facing a lifetime of renting houses rather than buying, and therefore need to rethink their approach to accumulating wealth without the benefit of home ownership’s “enforced saving”.
The Australian Bureau of Statistics’ (ABS) latest survey of income and housing revealed that 32 per cent of households are renting their home, a sharp increase from 27 per cent in 1997/98.
The proportion of households that own their own home fell to 66 per cent, down from 70 per cent in 1997/98, and households that own their home without a mortgage decreased to 30 per cent, down from 40 per cent.
According to EY research, two out of three Sydney residents think renting is a waste of money and it is much smarter to buy a home buyer. EY’s data came up with different results, as did Commonwealth Bank’s (CBA) latest research.
ABS chief economist Bruce Hockman said: “Interest rates have remained relatively low over the past several years and we have seen a recent softening in the rental market in some major cities.”
The ABS found that in 2017/18, renters paid $366 per week on housing, while housing costs for owners with a mortgage were $484 per week.
Despite this, on average private renters paid 20 per cent of their income on housing costs, compared to 16 per cent for owners with a mortgage and 3 per cent for households who owned their home outright.
EY compared a person who put their savings towards a 20 per cent deposit on an average priced Sydney unit and borrowing the rest; and another that put the same amount of savings into an S&P/ASX 200 index fund, leveraged with a margin loan with a 50 per cent LVR, and renting in the same suburb.
EY chief economist, Jo Masters said: “We would caution against just assuming that homeownership is the only way to create future wealth. The conversation needs to be broader and a consideration of alternatives needs to be a part of the conversation.”
The renter reinvested their dividends and regularly invested the difference between their rental cost and the buyer’s borrowing costs in the index fund.
EY measured the outcomes over 10 years, conducting the comparison for all of Sydney’s 43 local government areas. Surprisingly it found that in 62 per cent of the comparisons people came out ahead if they rented and maintained a leveraged investment in the Australian equity market.
In Sydney’s inner ring which covers areas such as North Sydney, Mosman and Leichhardt, renters came out ahead 70 per cent of the time over all periods. Outer ring areas didn’t perform as well and they include Baulkham Hills, Camden, Liverpool and Penrith.
While the increase of renters is widespread across the country, CBA’s latest research found that 75 per cent of people under the age of 30 and 69 per cent of those over 30 believe property ownership is the “Great Australian Dream”.
CBA executive general manager home buying, Dan Huggins said: “Our research shows a large shift in the number of people who now feel the dream of property ownership is achievable.”
Over 90 per cent of Australians said property ownership was achievable for potential first home buyers as long as they are willing to make sacrifices. This is a 10 per cent increase from 2018.
Huggins said: “This data suggests Australians are taking an increasingly optimistic attitude towards the property market.”