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A new research paper has found that renting is cheaper than buying for properties that are occupied for less than eight years.
The Reserve Bank of Australia paper was based on the assumption that real house prices grow at 2.4 per cent per annum, which has been the annual average rate since 1955.
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“Home ownership is more attractive the longer a house is owned, because transaction costs are amortised over a longer period,” according to the paper.
The cross-over point was calculated at eight years.
The paper said people who expect to move again in a few years’ time would be better off renting unless they could sell for a very large capital gain.
“We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting,” the paper said.
“If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting.”
The paper also found that the expectations of future capital gains implied by current house prices are in line with historical norms. “That allays some concerns about a housing bubble,” it said.
[Related: RBA dismisses foreign buyer fears]
