Renters who invest in shares instead of buying a home are usually better off, study suggests
Home buyers would have been better off renting and purchasing shares instead of pouring their savings into property in the majority of NSW suburbs, new analysis suggests.
The research showed those who bought properties in 60 per cent of locations accumulated less capital gains than those who rented in the same areas and purchased a leveraged ASX200 investment instead.
Among the areas where renters were substantially better off was Port Stephens, just north of Newcastle, and Woollahra.
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Renters were also better off in the Blue Mountains, according to the Ernst and Young analysis of Reserve Bank and Australia Bureau of Statistics data.
The size of the rental benefits depended on the timing of the property purchase and eventual sale.
Someone who purchased a unit in up-market eastern suburb Woollahra in 2004 before selling in 2014 would have ended up $570,000 worse off than a renter who purchased shares.
Meanwhile, those who bought in 2014 and sold in 2018 would have been $38,000 better off than renters.
2004 marked the peak of a long period of growth in housing values in the early 2000s while 2014 was the start of the property market’s next phase of growth.
The latest cycle of growth ended in July 2017 and home values have fallen nearly 13 per cent since then.
EY chief economist Jo Masters said the study showed buying wasn’t always better than renting, despite most Aussies viewing home ownership as a major priority.
“It’s time to give up on the mindset that renting is dead money,” Ms Masters said.
“(With renting) you’re not investing in an asset that you own — but with today’s property prices you could be better off renting somewhere affordable and investing the cash you’ve saved.”
There were instances where the Aussie dream of owning a home was not the best course, she added. “We shouldn’t be pushing an entire generation into unsustainable debt levels — we need to change the wealth creation narrative to explore options other than property.”
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The analysis, published in Safe as Houses, compared the capital gains of those who bought a home using a 20 per cent deposit with those who invested the same funds into a leveraged share portfolio and rented where they could afford to buy.
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In the interactive, readers can choose a suburb and time period to find out whether they were better off buying or renting.
Safe as Houses is aimed at strengthening tenants’ rights to make renting more feasible for those seeking stability.