Renting can beat buying

Perth residents who bought a home during the property boom will have to sit tight for three decades before their investment works out cheaper than renting.

Research by the Reserve Bank has revealed that the surge in prices over the past decade has made renting much more economically sound than buying.

Economists Ryan Fox and Peter Tulip, in a paper released yesterday, looked at whether Australian housing was overvalued.

While finding long term that prices were around fair value, the researchers also looked at whether people were better off buying or renting. They discovered the recent boom had dramatically altered that equation.

They took into account all the costs of buying and running a house, including interest rates and depreciation and the expected increase in value homeowners hoped to get on their property.

Between 1955 and this year, owning a home was less expensive than renting within about eight years. But over the past decade, when prices in Perth more than doubled, those who bought have gone backwards relative to those who decided to rent.

"If real appreciation over the previous 10 years is used as a guide, buying is less expensive than renting only with extremely long expected tenure - in excess of 30 years," the researchers found.

"Consistent with conventional wisdom, households expecting to move again in a few years time are better off renting, unless they believe they can sell the property for an unusually large capital gain."

House prices in Perth have climbed 120 per cent since early 2004 and rents have climbed 81 per cent.

Capital gains since the start of this year have evaporated, with RP Data noting that house values in Perth are down 0.7 per cent this month and 0.5 per cent this year.

Real Estate Institute of WA president David Airey said a home delivered long-term benefits because it was a quality asset that was tax-free.

The West Australian

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