Skyrocketing cost of renting seeing tenants become homebuyers

Mortgage brokers are seeing an increase in the number of tenants moving to buy a home on the back of rapidly rising rental prices.

One of them is Sarah Lyons*, who had been happily renting her Melbourne apartment for three years until last November, when the rent was hiked beyond what she could justify.

“My rent increased by 30%, which I thought was ridiculous,” Ms Lyons. “I just couldn’t see the benefits of paying $500 per week for a onebedroom place anymore.

“I decided to get in touch with a mortgage broker and discuss my options. I had some savings, but wasn’t sure if it was enough to buy a place of my own – turns out it was.”

Ms Lyons purchased a onebedroom apartment in a neighbouring suburb and is paying just slightly more in mortgage repayments than what she would’ve in rent at the higher price.

“At least this way, I end up with my own home,” she said.

Expensive rents are making tenants like Ms Lyons consider alternative arrangements, with many finding the option of buying to be more stable and a similar cost as renting.

Paul Williams from Mortgage Choice South Melbourne has been consulting a number of clients who have decided to buy after their rents were increased.

“It’s been the prompt for many people – the increase in rental prices and the lack of available properties,” Mr Williams said.

He noticed a particularly sharp uptick in December 2022.

“People have really tightened their spending in my view and now they’re getting sick of renting because they’re just waiting for their rents to go up,” he said.

PropTrack data shows that across Australia, 20.9% of homes are currently cheaper to buy than to rent, with the biggest portion in the Northern Territory with 94.4% of dwellings.

Paul Ryan, senior economist at PropTrack, said the apartment market is particularly cheaper to buy in than rent at the moment.

“In particular, unit prices are typically close to pre-pandemic levels, but are now seeing rapid rent increases,” Mr Ryan said.

“So, I think many of these could be close to being cheaper to buy than rent – if not now, then soon as rents are expected to keep rising strongly over 2023.”

Housemates pull together a deposit

Mr Williams said he has also seen an uptick in friends or housemates buying together in a bid to navigate the increasingly difficult rental market.

“I’ve had three clients in just one week who are friends buying together.

“To do three a week is unprecedented for us.

“Previously, you might do one every few months. I’m not sure whether it’s a trend, but I’d be surprised if we don’t see continued increase in inquiry.

“What I’ve been seeing is that for some renters in share houses … their rents have increased between 10% to 30%. So, they sit down and start to have a conversation about pulling together savings and looking where the mortgage repayments are relative to the rent they would pay.”

While there are many benefits to buying with friends or housemates, including being able to get into the market sooner or purchase in a location you’d otherwise be priced out of, Mr Williams said there are also risks.

“We encourage any friendship groups to sit down and really work through a number of scenarios, and to get legal advice.”

What’s making tenants leave the rent market?

A combination of increased rents and a shortage of supply is making the rental market less appealing to tenants.

The latest PropTrack Rental Report shows that prices are on the rise nationally, with median advertised rents sitting at $480 per week – a 6.7% increase over 2022.

Unsurprisingly, Sydney and Melbourne saw the sharpest increases.

Vacancy rates are also low, sitting at just 1.3% nationally as of December. They are especially low in Sydney (1.8%), Melbourne (1.7%), and Brisbane (1.1%).

Added pressure is expected to come from the return of international students and a surge in skilled migrants.

* Surname changed at the interviewee’s request for privacy reasons