It’s not the first time we have seen the “click bait” headline claiming a Monthly mortgage is cheaper than Renting. It glosses over a few issues. Some obvious, and some not so.
Does every renter want to buy a home?
Firstly, the headline assumes that every renter wants to buy a home. However, this is not always the case.
Saving the deposit and having the income.
But if they do want to buy, the most obvious hurdle for renters wishing to buy, is saving a large enough deposit (and having the requisite income) to afford it.
The cost of buying and selling.
The less obvious obstacle is the cost or financial friction incurred when buying and selling. Renting is a friction free option. As life, work, education, travel, or relationships change, renters are able to change their home situation easily.
Buying and selling an apartment or house, is full of friction costs. The biggest one being state government stamp duty. Even though first home buyers are exempt from stamp duty, you can only be a first home buyer once. The next time you buy, you will be hit with the full bill from SRO (about 5% of the purchase price, in Victoria). This encourages would-be home buyers to delay a purchase, as a result.
There is also the capital risk. If the property drops in value over the holding period, and a purchaser has only contributed a small deposit (as available with several government deposit guarantee schemes) then, after selling costs, an owner may have to find additional capital to enable them to sell the property.
These risks and costs are not considered in the rent vs buy analysis. The rent option remains more attractive for many people preferring life flexibility. It is generally understood we all pay a premium for convenience and flexibility.
