What is renting vs buying?

Renting versus buying is one of the central financial decisions for most Australian households. Both have advantages and trade-offs, and the right choice depends on the household's income, savings, location, plans for staying in one place, and personal preference for stability versus flexibility.

Renting offers flexibility and lower upfront cost. A renter typically needs four weeks rent as bond plus the first two to four weeks rent in advance, totalling around 8,000 to 12,000 dollars for a typical Australian capital city rental. Renters can move easily at the end of a fixed term, change suburbs to follow work or family, and avoid the maintenance costs and risks of ownership. They are also exposed to rent increases, the risk of being asked to leave at the end of a lease, and the limits some states place on personalising the property.

Buying provides long-term stability and wealth building through capital growth, but requires a much larger upfront commitment. A typical Sydney house at 1.5 million dollars requires a deposit of 150,000 to 300,000 dollars (10 to 20 per cent), about 60,000 dollars in stamp duty, plus conveyancing and inspection costs. Monthly mortgage repayments at current interest rates for a remaining 1.2 million dollar loan would be about 7,500 dollars, well above market rents in most areas. Owners also pay council rates, water rates, building insurance, and maintenance, often totalling 1 to 2 per cent of the property value annually.

The longer a household stays in one home, the more buying tends to make financial sense, because purchase costs (stamp duty, conveyancing, agent fees on resale) are amortised over a longer period and capital gains have more time to accumulate. The primary residence is exempt from capital gains tax, and the family home is also exempt from the Centrelink assets test, both of which favour ownership at retirement. Recent rises in interest rates and house prices have extended the typical break-even point between renting and buying to 7 to 10 years in many capital city markets, longer than previously.