Renting versus buying: what your rent could be doing instead
Australian rents rose 42% over five years, and the national vacancy rate has sat around 0.7%. For a lot of renters that has flipped the old logic on its head. Renting stopped being the flexible, affordable option somewhere along the way, and started feeling like a treadmill with the speed turned up.
The frustrating part is the loop it creates. High rent is exactly what stops you saving the deposit that would end the high rent.
Below is that loop written out with numbers. The scenario is illustrative, built to show the structure rather than to describe a specific person.
The situation
Maya rents a two-bedroom apartment in Sydney's inner west for $820 a week. That is around $42,600 a year.
She is a registered nurse on a stable salary. Between rent and living costs, saving a full deposit has never got close to working, every year the amount she manages to put aside is smaller than the amount prices move.
The home she wants to buy is $850,000. Her available funds are $21,250.
What the rent is actually costing
$42,600 a year is the headline. Over five years, roughly the time it would take her to save a conventional deposit on Domain's national figures, that is about $213,000.
Not $213,000 badly spent. She lived somewhere, and housing costs money whether you own it or not. But it is $213,000 that builds no equity, at the end of which she still needs the deposit.
That is the real cost of the loop, and it is the number that never appears in a savings plan.
The same purchase, structured
Primary home lender (80% LVR): $680,000
HAS deposit contribution (17.5%): $148,750
Maya's contribution (2.5%): $21,250
= a 20% deposit, no LMI
Her $21,250 is exactly 2.5% of $850,000. Purchase costs, stamp duty and settlement expenses, are separate and she still needs to fund those.
There is no Lenders Mortgage Insurance, because the deposit reaches 20%. Her repayments are reduced for the first five years. And the money that was going to a landlord is now going against a loan on a property titled in her name.
Being honest about the comparison
Owning is not automatically cheaper than renting, and anyone who tells you it always is has something to sell.
You take on rates, insurance, strata in an apartment, maintenance, and the cost of the money itself. In the early years of a loan, a large share of each repayment is interest rather than principal. There are years where renting is the better financial decision, and there are people for whom it stays the better decision.
What changes with ownership is where the money ends up. Rent is an expense that closes each month. A mortgage repayment is part expense and part transfer into an asset you hold. Over a long enough period that difference compounds, and over a short period it may not.
The other half of it is not financial at all. Security of tenure, in a rental market at 0.7% vacancy, is worth something that does not fit in a table.
What Maya gave up
A share of the growth in the home's value, settled when she sells, refinances out of the arrangement, or buys out the HAS position.
Not a share of the home. The property is titled in her name. HAS holds a second mortgage as security, the same instrument her primary lender holds. The value of the home is not shared; a percentage of the growth is.
The question worth answering first
Would your income comfortably service a mortgage on the home you actually want?
If the answer is yes and the only obstacle is the lump sum, then the rent-versus-buy question is really a deposit question, and it has more answers than most renters have been told.
If the answer is no, the honest advice is a smaller target or more time, and a reputable provider will say so.
Frequently asked questions
Is it cheaper to rent or buy in Australia?
It depends on the property, the loan, how long you hold it and what you would otherwise pay in rent. Ownership adds rates, insurance, maintenance and strata, and early repayments are heavily weighted to interest. The structural difference is that rent is an expense while a mortgage repayment partly builds equity in an asset you hold.
How much have Australian rents risen?
Rents rose 42% over five years, with the national vacancy rate sitting around 0.7%.
Can I buy if I have never been able to save while renting?
Possibly. SmartShare requires a minimum 2.5% contribution plus purchase costs and does not require genuine savings, so the funds do not need a long savings history. Your income still has to service the loan on its own merits.
How much is 2.5% on an $850,000 home?
$21,250, plus purchase costs including stamp duty, which is commonly around 4% depending on your state and any concession.
Is this a real client?
No. The scenario is illustrative and is built to demonstrate the structure.
Check if I qualify → Get started, or read how long a deposit really takes to save.