Majority of Sydney home owners would be financially better off renting: Report

Homeowners could have made up to $608,000 more over 10 years if they put their 20 per cent deposit into equities.

Homeowners could have made up to $608,000 more over 10 years if they put their 20 per cent deposit into equities. Photo: Getty

Within the country’s least affordable housing market – Sydney – renting rather than buying is a better financial choice 60 per cent of the time, according to Ernst and Young.

It found home owners across the city could have made up to $608,000 more over a 10-year period if they had put their 20 per cent deposit towards a leveraged ASX200 fund and rented, instead of purchasing a home.

EY chief economist Jo Masters said that while the timing and the cost of the purchase were critical, the research presents an opportunity to shift the focus on the rent-or-buy debate.

“We would caution against just assuming that home ownership is the only way to create future wealth. The conversation needs to be broader and a consideration of alternatives needs to be a part of the conversation,” Ms Masters said.

Whether renters or buyers are better off depends on location and timing

Whether renters or buyers are better off depends on location and timing. Graph: EY

“It’s time to give up on the mindset that renting is dead money. Yes, when you’re paying rent to a landlord, you’re not investing in an asset that you own.

“But with today’s property prices, you could be better off renting somewhere affordable and investing the cash you’ve saved.”

The research modelled two people looking for a home with the same starting capital. One bought a home, borrowing 80 per cent of the purchase price, while the other rented in the same suburb and invested their capital.

They were compared over 10 years between 1997 and 2017, with renters coming out in front in 62 per cent of the 645 scenarios.

Senior policy adviser at the Tenants Union of NSW, Leo Patterson Ross, argues that rental laws in Australia don’t make renting for life easy.

“The reason people prefer buying over renting is that we’ve got policy levers which push people towards that,” he said.

“Tenancy is often such a rubbish experience, but if we fixed renting we’d start to see it become a commonplace decision, more normal and more respected.”

Poor financial literacy is costing

EY’s Sydney managing partner Andrew Price, who commissioned the research, said poor financial literacy across Australia meant people were more likely to prefer tangible investments like houses.

“A lot of younger folk in particular [generally] know how to buy a house … whereas when talking about investing in shares, they don’t know how to do that,” Mr Price said.

“Without more attention to financial literacy, people are limited in their choices.”

Whether to invest in property or shares has been a long-argued debate in Australia. But for many it comes down to the security of home ownership rather than making more money.

Louise Smith, 28, rents a house in Melbourne’s inner north. She has been saving for 13 years and says she’d rather put it towards a home deposit than make it big on the share market.

“I’m not looking at a house as a way of making money, I‘m looking at it as a fundamental necessity for living,” she said.

“It’s not about which investment would earn me more money, it’s thinking about housing as an essential rather than a commodity.

“That security, of a long-term roof over your head, where no one can kick you out, it’s worth more than in the future than having a bigger pot of money.”

renting better than buying

“Shares seemed a lot more complicated and not very user-friendly.” Photo: Cecilia DiStefano

Cecilia DiStefano, who purchased a two-bedroom unit in Thomastown in 2017, agreed that investing in the share market had seemed too complicated when she made her purchase.

“Buying property was a personal goal for me. It was appealing because I could get something out of it straight away, whereas when I looked into shares it just seemed a lot more complicated and not very user-friendly,” she said.

“Now that I’ve got the first property done, I’ve been looking into plenty of strategies that you can do while renting.”

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