It’s an age-old debate - are you financially better off buying your own home, or should you give up the dream of ownership altogether and rent long-term instead?
The debate has grown increasingly relevant in today’s housing market, as current generations struggle to get a foothold against a backdrop of spiraling costs despite low interest rates.
Depending on which side of the fence you sit – rent or buy - there’s an argument to match.
On the ‘buy’ side, supporters contend that the long-term growth of property, as well as the fact that renters are simply paying off someone else’s mortgage, are strong reasons to put your money into your own home.
On the other side, advocates of renting point to the substantial extra costs of home ownership, such as interest payments and maintenance costs, as well as the lifestyle freedoms renting offers, as key motives to avoid ownership and invest elsewhere instead.
So what’s the final word on rent vs buy?
In what could be the final say on the issue, recent research from Swinburne University
found that buying a home had substantial benefits over renting, but not for the normal set of reasons.
The research, conducted by the Swinburne Institute for Social Research, found that Australians who don’t own a home by age 45, face the likelihood of being both renters, and highly impoverished, in retirement.
To put it simply, if you’re still renting by the time you hit middle age, chances are that you will struggle financially in retirement.
The research, which analysed a broad range of information including ABS, superannuation and aged pension data, evaluated the degree to which households can accumulate wealth for retirement, focusing on housing, and the impact of relationships and divorce or separation.
Key findings from the survey included:
• An increasing number of older people in Australia are experiencing housing insecurity and impoverishment in retirement. Overwhelmingly these are lone person households living in private rental.
• A large number of Australians are unable to accumulate savings for retirement; lone person or couple households living in private rental at the age of 45–49 years are likely to be private renters in retirement.
• Retired lone person and couple-only renters have little wealth and women tend to be somewhat poorer than men. Renters at early midlife have more savings than those who are retired, but what they have is still grossly inadequate.
• Older private renters have managed rental increases by moving to low-cost markets in urban fringe and regional areas, or by trading down in size and quality of property.
Here are some of the other reasons why people find buying a home to be a good choice:
• Housing is considered a safe, steady investment and house prices generally rise significantly over many years, while your level of loan debt reduces at the same time. This dynamic means that over time, the wealth of the homeowner steadily grows.
• Making regular repayments to your home loan is also a form of forced saving. Unless you have an extreme amount of discipline, it is very difficult to rent and at the same time be able to save and invest a similar amount of money as to what you would be paying in home loan repayments.
• Ownership enables you to put down roots and make connections in your community from which you can draw a sense of belonging, pride, well-being and stability. As a homeowner, you don’t have the pressure to uproot and move every 12 months or few years. You become a part of the community and you decide when and if you want to move.
• Homeowners also enjoy a freedom that isn’t possible when renting. You can make changes to your home, choose the colours you want to paint your walls, decide where you want to hang your photographs or paintings and decide how you want your garden to look and perhaps get the pet that you had been longing for.