RBA say's your probably better off renting

[sabre_ac]

The RBA says you're probably better off renting

Read more: http://www.smh.com.au/business/the-...off-renting-20140714-zt6xx.html#ixzz37RoZ7qB7

The RBA's conclusion is that house prices would have to rise at the same rate as they have for the past six decades for owners to be as well-off as renters.

I think many people would have already suspected this, but it is nice to hear it from a source that is held accountable to some degree and heavily scrutinized.

That said with the Australian governments favourable opinion of investment in houses it may still be the best way to accumulate wealth for a high proportion of the population. For those with discipline to regularly invest and not panic sell, purchasing shares is consistently shown to have better return but that its simply not an option for many people.

 

[Ripper]

We all rent really. You may "own" your house but you don't control it. Tell me 5 things you can do without getting permission.

 

[GeeUUess]

Assuming real house prices increased at the historical expected real rate of 2.4 per cent, buying beat renting if the owner held for more than eight years. However if the expected real rate of 1.7 per cent experienced over the past 10 years was used, owning only beat renting over longer than 30 years.

There is no doubt that in the here and now renting is cheaper and I don't think the RBA needed to do a study to tell us that.

But over a lifetime buying defeats renting hands down.

Very misleading media portrayal of the study.

 

[JohnW]

This also assumes that you dont "waste" the $ left over in the renting scenario. Which in reality doesn't happen.

Good luck in retirement, no house, little savings, paying rent, all on the age pension (if its still around)

 

[superfraser]

How many people pay off their house in the 30 years?

I would think that most would upgrade - and hence, increase there loan size.

The issue with the Melbourne market, in my opinion, is that anything that you can afford to buy - at entry level. Is the sort of place that you won't want to stay in forever. Hence, you have to upgrade. Hence, you pay interest to the bank forever.

Edit: Scrap that.

How many new buyers will pay off their house 30 years from now?

No point talking about historical data. It was a different time.

 

[GeeUUess]

How many people pay off their house in the 30 years?

I would think that most would upgrade - and hence, increase there loan size.

The issue with the Melbourne market, in my opinion, is that anything that you can afford to buy - at entry level. Is the sort of place that you won't want to stay in forever. Hence, you have to upgrade. Hence, you pay interest to the bank forever.

Edit: Scrap that.

How many new buyers will pay off their house 30 years from now?

No point talking about historical data. It was a different time.

But when you are upgrading you have built up equity in your old house so your loan may not actually increase too much, and possibly be less than what your original loan was yet standard of living and intangible benefits increased.

 

[superfraser]

But when you are upgrading you have built up equity in your old house so your loan may not actually increase too much, and possibly be less than what your original loan was yet standard of living and intangible benefits increased.

But won't all good property in Melbourne also have risen in the time that you've been paying down your loan? Hence, to upgrade, you need to take a larger loan?

I'm happy to be corrected. But that's how I understand it.

 

[Stocks_go_Up]

But won't all good property in Melbourne also have risen in the time that you've been paying down your loan? Hence, to upgrade, you need to take a larger loan?

I'm happy to be corrected. But that's how I understand it.

People forget that.. Especially when dealing with PPOR. It's great property prices are growing but you aren't going to see any of that because once you sell you will buying back into this appreciated market that your property gained in so the profit is wiped out - unless you are happy to live on the street.

 

[JohnW]

But won't all good property in Melbourne also have risen in the time that you've been paying down your loan? Hence, to upgrade, you need to take a larger loan?

I'm happy to be corrected. But that's how I understand it.

I guess it comes down to how the growth is derived. If it is just organic growth i.e. all property goes up 2% in that area, then what you are saving i agree with, if you are talking about growth derived from reno's etc then I dont. I guess it's hard to look at such a broad area in a nutshell.

 

[L_W_P]

Did the study take into account things like maintenance costs and council fees over the span of the 30 years as well?

 

[Mofra]

Assuming real house prices increased at the historical expected real rate of 2.4 per cent, buying beat renting if the owner held for more than eight years. However if the expected real rate of 1.7 per cent experienced over the past 10 years was used, owning only beat renting over longer than 30 years.

There is no doubt that in the here and now renting is cheaper and I don't think the RBA needed to do a study to tell us that.

But over a lifetime buying defeats renting hands down.

Very misleading media portrayal of the study.

Not at all - I rent, as do a number of my friends - we all own investment properties as well as other assets.

Once taxation is taken into account, it's far cheaper to rent while at the same time you have the opportunity to a hold a greater portfolio than if you simply buy PPOR.
The only real fiscal benefit to PPOR ownership is CGT exemption - but how often do people actually dispose of IP (and if they do, acquisition costs are added t to the cost base and CGT receives a 50% exemption for assets held > 12 months anyway).

 

[JohnW]

Not at all - I rent, as do a number of my friends - we all own investment properties as well as other assets.

Once taxation is taken into account, it's far cheaper to rent while at the same time you have the opportunity to a hold a greater portfolio than if you simply buy PPOR.
The only real fiscal benefit to PPOR ownership is CGT exemption - but how often do people actually dispose of IP (and if they do, acquisition costs are added t to the cost base and CGT receives a 50% exemption for assets held > 12 months anyway).

I couldn't deal with property inspections etc. Do you find them annoying?
Would you say that the $$ you save from renting are all invested in other assets?
The finance side of the equation defiantly works though, especially if you can split rent with some one else.

 

[00Stinger]

Does this take into account that when a renter retires from work he/she will still be paying $$$'s for rent, whereas the person who bought their place will be nothing?

 

[Mofra]

I couldn't deal with property inspections etc. Do you find them annoying?

Haven't been home for one for a few years.

Maintenance is actually easier renting - there is the obligation to have any issues at your residence fixed, whereas owning you have the responsibility.

Would you say that the $$ you save from renting are all invested in other assets?

Yes - two mortgages and a margin loan.
The tax benefits also make for a nice bonus once per year (unless your work allows you to salary sacrifice)

The finance side of the equation defiantly works though, especially if you can split rent with some one else.

I have shared and lived alone from time to time, although one friend who owns and has two paying housemates as he'd struggle without them.

 

[Mofra]

Does this take into account that when a renter retires from work he/she will still be paying $$$'s for rent, whereas the person who bought their place will be nothing?

Ah the "rent money is dead money" argument - typically ignores the fact that non-deductible interest is also dead money.

 

[JohnW]

Are the tax benefits you mention the negative gearing part of the equation? i.e. the loss you make on a yearly basis? Obviously in lieu of some capital gain?

Do you not have the same maintenance issues with owning the rental? Albeit tax deductible should you be making a loss.

Does the rent you pay, not offset the tax saving?

 

[raskolnikov]

It also doesn't take into account the fact that if it is your own home you can do anything you want to it. I love renovating my home and making different kinds of changes and improvments. If you rent you basically can't change a thing so it never really feels like a home.

 

[Atley]

What?, you can rent you preferred home without having to do any renovations. ie...live in something better than you could afford to buy.

 

[Scotland]

Yeah but you can't hang a painting or paint a wall etc. as it's not your house, that's what he was getting at.

I think renting is underrated and it's great that people are waking up to the idea that it isn't always a good time to buy a house and houses don't always go up in value, but long term owning your own home should still be a goal in Australia - just not one as easily achievable right now compared to other points in the last decade or three.

 

[Piss Poor]

also it doesn't say that by renting you could be evicted any time for no reason at all and are never really secure.
very difficult to find a rented property that you can stay for years. most either sell when they have had enough then you got to move out, happen to me with only one month notice so I brought a house and never had to worry about that again.
Owning>Renting

 

[Deemanding]

The RBA view published in the article is a present view only.

If I adopted the same approach when moving out of my parents place in 2008 I'd have paid something like an average of $20,000 rent per year over the last 6 years - $120,000 in total.

As it is, will have paid about $60,000 interest over that timeframe + $10,000 in council rates + $10,000 in water rates + $30,000 in renovations + $10,000 incidentals (insurance, bank fees etc) so am in the same position out of pocket.

Difference being that I've now also built around $400,000 in equity which will have easily exceeded the level of savings I'd have achieved over the same time period!!

 

[Heardy_101]

I dunno, the 300 a fortnight I pay goes towards my own mortgage, not someone elses. All of my next door neighbours meanwhile, all forked out between $200 and $300 PER WEEK inclusive, in rent. I know what I'd rather do.