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You're as well off renting: RBA

15 July 2014 Staff Reporter

Property prices would have to continue to rise at the same rate as they have for the past six decades for owners to be as well off as renters, according to a new research paper from the Reserve Bank of Australia (RBA).

The extensive study found the average homebuyer would be better off renting if house price growth slows below its long-term average.

"If potential homebuyers expected house prices to rise faster than 2.9 per cent (per year), then buying would be more attractive than renting,” said the RBA paper published yesterday.

In Is Housing Overvalued? two chief RBA economists argue that a comparison of the costs of home ownership with the costs of the nearest alternative – renting – "seems central to a measure of overvaluation".

On the assumption that "assessments of house prices are sensitive to assumptions about expected capital gains", the RBA finds that if prices grow more slowly, as some forecasters predict, the framework used in the paper suggests the average homebuyer would be financially better off renting.

The RBA said expectations of future capital gains implied by current house prices are in line with historical norms, which "allays some concerns about a housing 'bubble'".

The authors said house prices have increased at an average annual rate of 2.4 per cent since 1955.

"In April 2014, the cost of owning was the same as that of renting - 4.2 per cent of the value of the house. That is, houses are fairly valued," they said. 

You're as well off renting: RBA
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