This week the Reserve Bank of Australia released a research paper analysing whether the average household is financially better off buying or renting a property.
Considering current house prices, rents, interest rates and costs it concluded “the average household is probably financially better off renting than buying”.
Since 1955 real house prices have increased at an average annual rate of just below 2.5 per cent. For owner occupiers to be as financially well off as renters house prices will need to continue to rise at the same rate.
“Many observers have suggested that future house price growth is likely to be somewhat less than this historic average,” the RBA said.
“If house price growth were to be slower than the historical average, as some forecasters predict, then the average home buyer would be financially better off renting.”
The RBA said these finding should put concerns of a “housing bubble” to rest.
“If this rate of appreciation is expected to continue then our estimates suggest that houses are fairly valued,” it said.
What this means is if real house prices continue to grow in line with the historical average rate then buying a house today would be on par with renting.
But findings aside, this research paper could also be seen as a warning from the RBA to investors to use caution when it comes to estimating future property values.