For the first time in years, a growing pocket of Australian suburbs presents a striking paradox: buying a home has become cheaper than renting one. The finding, most pronounced in inner-city Melbourne, challenges longstanding assumptions about property market economics and reflects a rapid shift in rental inflation versus property values.
According to Cotality's March housing report, it's $322 a fortnight cheaper to buy a unit in inner-city Melbourne than it is to rent one. The difference is substantial. For a household budgeting fortnightly, that savings amounts to nearly $8,400 annually on the basic cost of shelter. Yet before would-be buyers rush to the auction house, the analysis deserves closer scrutiny.
The comparison rests on specific assumptions. Those figures assume a 20 per cent deposit on a 30-year loan at an interest rate of 5.75 per cent. For most Australians, particularly younger renters already stretched by housing costs, accumulating a $90,000 deposit (20% on a $450,000 property) remains a significant barrier. The alternative of a 5% deposit triggers additional costs and higher repayments.
In Sydney's Liverpool, renting a unit costs just $20 more per fortnight than buying. Parramatta is $40 more, and Auburn $71 more. North Canberra came in at $37, Adelaide City $38 and Perth City $72. The picture for houses is starkly different. No capital city areas were cheaper to buy than rent, though the smallest differences appeared in Darwin, Hobart and the fringes of Adelaide and Perth.
What explains this counterintuitive shift in units? Investors were really shying away from Melbourne overall in recent years, which has helped to contribute to making it cheaper to purchase in some of those inner-city suburbs of Melbourne for units rather than rent. Rental demand has also softened following the return of international students and normalisation of migration patterns after the pandemic.
Yet the analysis glosses over substantial ongoing costs that renters avoid entirely. Compare the Market's analysis doesn't take into account costs that apartment owners have to bear (that renters don't) like council rates, strata fees, property maintenance and repairs. These can be substantial extra imposts for owners on top of mortgage repayments, especially if an apartment building needs substantial maintenance or has building defects. A unit in an older building, or one with deferred maintenance, could see strata bills climb into the hundreds monthly.
The affordability advantage may also prove fleeting. Three out of the four big banks are now forecasting two rate hikes by the RBA, which will directly increase mortgage repayments. If rates rise to 6.5% or beyond, the mortgage advantage evaporates. First-home buyers considering a purchase based on current rates face genuine risk of negative equity or payment shock within 18 months.
The broader context matters too. Across combined capital cities, only 1.7 per cent of suburbs showed it was cheaper to buy a house than rent, compared with 20.7 per cent of suburbs for units. In regional areas, the numbers rose to 14 per cent for houses and 31.3 per cent for units. This suggests the buy-versus-rent equation depends heavily on location, property type and deposit capacity.
What the data does reveal is that rapid rental growth has created real pressure on tenant affordability. The rental market is increasing faster than wage price growth (increasing at 11.1% annually versus wage increases of 3.2%), meaning rental costs soon become unaffordable. For those fortunate enough to hold a deposit and access finance, ownership might offer relief from escalating rents. For the broader population of renters, it remains out of reach.
The Melbourne finding is noteworthy not because homeownership is suddenly within reach for most Australians, but because it illustrates how concentrated rental pressure has become. Supply constraints have driven rents upward so sharply in certain suburbs that even modest-priced units now offer mortgage repayments that rival or beat rent. That situation is unlikely to persist if interest rates rise or if new apartment developments eventually ease supply. But for now, in a handful of inner-city postcodes, the maths works in favour of buyers who can actually afford to buy.