Are “two Australias” developing in the property market?

The hidden story of how Australia's property market is dividing

Are “two Australias” developing in the property market?

News

By Mike Wood

Australia’s property market might be creating two distinct camps within the real estate marketplace, as home owners and renters are increasingly cast apart from each other.

A recent study from CoreLogic showed how it is now cheaper to buy than to rent in many areas of Australia, particularly regional areas, but in those same areas, vacancy rates are so low that it is near impossible to rent affordably. In some parts of Regional Australia, rents have tripled within the last year.

In Townsville, for example, it is cheaper to buy than rent in 94.6% of properties, whereas in  suburban Sydney, that is only true in around 1% of homes. For those tied to a physical location because of work or lifestyle commitments, such as key workers, owning a home is now a distant dream.

Thus, two Australias are created: those already on the property market and those without hope of ever making it on.

“It’s a two-sided coin,” explained Dr Diaswati Mardiasmo, Chief Economist at PRD in Brisbane. “The calculations where it is cheaper to buy than to rent do work out, from a mathematical perspective, when you’re breaking down the costs. A lot of these assume that you have the 20% deposit, you’re working with the current home loan rate and also that you’re taking a 25 or 30 year mortgage time.”

“If you do the calculations and you have those assumptions, working out the monthly repayment and then you break it down on a week-by-week basis, it can come to be cheaper than a weekly rent because of the shortage of supply at the moment (which has driven rents up). It can mean that Australians would want to buy instead of rent.”

Dr Mardiasmo has spoken to Australian Broker before about what she called the “catch 22” of Australian Government housing policy, which has seen incentives to get First Home Buyers onto the property market via subsidies on deposits, but which could potentially leave them with dangerously overbalanced mortgages.

“However, it’s not going to be the case for Australians who can’t put the 20% together and have other concerns, like bad credit or other reasons where they can’t get a loan, and they can’t find a place to rent either,” she said.

“So you have two sides of the story: those who can buy instead of rent will be able to capitalise, but those who can’t buy are going to be struggling to find a place to rent, and to afford that rent. That’s the two Australias.”

“It all comes down to your choice of location and your flexibility regarding work. If your work will allow you to move somewhere more affordable, and you can find somewhere to rent, then you can live somewhere.”

“It’s theoretically a good idea to give up a Sydney apartment, for example, to be able to rent in a cheaper place in a regional area, but to actually make that happen is another thing. You’ve got work, and you’ve got to be able to find a place where there is infrastructure that allows you to do that and maintain that lifestyle.”

“At the moment, because of the shortage in regional areas, it’s possible that the rent is almost equal to the amount that you need to pay in Sydney, and you have to weigh that up. Yes, you might pay $50 less in a regional area, but will you have the same lifestyle that you are used to?”

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