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Are consumers really better off renting?

The RBA's report Is Housing Overvalued? suggests Australians are better off renting than buying, Australian Broker catches up with Craig James, chief economist for CommSec, for his opinion.

Video transcript below:

Reporter:  In the wake of the Reserve Bank’s recent paper, “Is housing overvalued?”, suggesting that the average household was better off renting than buying, Australian Broker caught up with Commonwealth’s economist, Craig James for his opinion.

Craig James, Chief Economist at CommSec
Craig James:  
Well I think it’s a very good paper.  I think it’s one way, we have got a lot of rigour involved.  We have got data now in terms of Australian house prices back to 1955 on a consistent basis and Reserve Bank hasn’t looked at prices just in terms of growth of home prices, it’s looked at it in terms at really the cost of ownership, you know, whether somebody should rent or whether somebody should buy.  

Traditionally [megers] inside the economist have looked at the degree of home price growth and determine whether you know, it’s over valued doing it or not.   You know, I think it’s a sort of a good rigorous discussion of the cost of ownership or you know a sort of a, whether you should be sort of renting a property and it enables people who are you know sort of involved in that decision to be able to do some good research.  

Reporter:   However, James and Commonwealth are willing to be a bit more positive than the Reserve Bank predicting a hybrid of higher home prices and stable low interest rates in the coming months.

Craig James:  Probably a little bit more bullish, little bit more optimistic in terms of home price growth than the Reserve Bank.  The Reserve Bank believes that over time we might only see something like 2 1/2% real growth of home prices, something like the order of 5 to 6% but in Sydney at the moment, home prices are growing at something like a 15% annual rate.   I think it’s going to take some time for that home price growth to come down.  

We have also got to realise that we have got very very low interest rates across Australia and that certainly makes home purchase very very attractive at this kind of point in time.  I think that’s going to remain the case while interest rates are steady and that’s probably going to be the case until much later this year, early next year.  So I think in terms of home price growth, probably more like 6-7% growth nationally in terms of home prices, little bit higher than that in terms of Sydney which means buying a home is probably more a attractive proposition rather than renting.