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Buying Versus Renting

I came across this chart last week, and on Friday night a friend of mine also sent it through to me and asked whether there was any similar analysis for Australia. I told him I would look into it over the weekend.

And so here it is - buying versus renting for Melbourne and Sydney.

The chart below illustrates what it costs (per month) to buy a home versus renting a home in both Melbourne and Sydney since 2006. What stands out for me is the consistent gap between the cost of buying and the cost of renting, whether you're in Melbourne or Sydney. At the moment, the cost difference is about $1,500 per month.

Admittingly, the chart doesn't go as far back as the US chart does, however, I believe the Australian market has had a fundamental shortage in properties for a lot longer than the US market has. And this is the key reason for the rise in prices.

Even when you look at the chart of the US since 2006, the buying versus renting when compared to Australia looks nothing like each other. The massive spike in the US' "cost to buy" of late, I believe, is a function of interest rates and US 30-year mortgages which are impacting supply.

This analysis was not untaken to take a view on whether one is better than the other, rather out of interest. There are so many more other factors to consider when buying or renting, and the chart above does not take any of those into account.

Interestingly, post-GFC, it was cheaper to buy a property in the US than it was to rent - if you had a job that is. Where all of this goes, whether in the US or Australia, no one really knows. What we do know, however, is that supply and demand have one of the greatest influences on price than any other factor.

We've been out of podcast action for the last few weeks - we'll be back soon.


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