Rents going down

Arrow said :

Genie said :

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move.

Wrong.

If you have a lease and you pay your rent, you cannot “be given notice at any given time to pack up and move”. You have security until the end of the lease.

I know there are plenty of renters out there who don’t know their rights and think they have to leave at any time, but you don’t. Even if the house is sold to a new owner.

Of course, when the lease expires, you may be told to leave. But in 12 years renting in Canberra, I’ve never had that happen. Landlords with decent properties are keen to keep good tenants – especially in the current climate – and will almost always want to keep you on.

Make sure you renew the lease, obviously – don’t go month to month.

Once again the furphy that you have to leave at the end of a lease. You don’t. You have to be given 26 weeks notice unless the landlord is planning renovations or wants the place for himself or family members. The last point is often used but a landlord who then rented out the property to a new tenant would obviously be in breach of the act.

Arrow said :

Genie said :

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move.

Wrong.

If you have a lease and you pay your rent, you cannot “be given notice at any given time to pack up and move”. You have security until the end of the lease.

I know there are plenty of renters out there who don’t know their rights and think they have to leave at any time, but you don’t. Even if the house is sold to a new owner.

Of course, when the lease expires, you may be told to leave ………….

Make sure you renew the lease, obviously – don’t go month to month.

Even if you’re on yearly leases, you still have that chance that every year you could be given notice to move. I don’t consider that security. Your security is only good for 12 months. Bugger that.

Arrow said :

Genie said :

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move.

Wrong.

If you have a lease and you pay your rent, you cannot “be given notice at any given time to pack up and move”. You have security until the end of the lease.

I know there are plenty of renters out there who don’t know their rights and think they have to leave at any time, but you don’t. Even if the house is sold to a new owner.

Of course, when the lease expires, you may be told to leave. But in 12 years renting in Canberra, I’ve never had that happen. Landlords with decent properties are keen to keep good tenants – especially in the current climate – and will almost always want to keep you on.

Make sure you renew the lease, obviously – don’t go month to month.

The circumstances in which the tenant can be booted at short notice have been reduced, but not removed – for example, genuine need to house a family member or some such. The actual circumstances are fairly small but probably open to exploitation by unscrupulous types.

Watson said :

arescarti42 said :

Well the thing is it usually costs considerably more. Even if the mortgage for a certain place is exactly the same as renting it, you’re ignoring all the other costs that home ownership entails (rates, insurance, stamp duty, repairs, maintenance, body corporate fees, etc).

Then you also have to factor in costs relating to renting, like the cost of moving – removalists, end of lease cleaning, etc – every few years or if you’re unlucky more often. One such move would easily add up to what my annual rates cost me.

Most first home buyers get stamp duty concession (ie. pay $20) and the first home buyer grant.

And maintenance is a cost factor, unless you buy a brand new house, which should see you through the first few years without too many extra costs.

Then there is the fact that you almost inevitably pay more for heating (and cooling) in rentals because no one invests in insulation, which people do tend to do if they own their home. I paid close to $1,000 a quarter just for gas heating in winter in my last rental and am moving to a smaller place with a 6 star energy rating which will have all the appropriate window coverings, etc. Will report back when I have the figures but I expect a substantial saving there.

Like for like, it really isn’t that much of a difference, even in the first few years of owning. And of course, the rents will inevitably go up over time, but the mortgage repayments will stay the same for as long as the interest rates do.

And no one can kick you out of course or invade your privacy every few months to check if you dusted well enough and if your lawn is neat enough. And that is worth a bit of extra money to most people.

Watson,
I’m glad you’re happy with the house you purchased and obviously its working for you, but as has been repeatedly pointed out, like for like there IS a big difference in renting vs buying in most areas.

The possible extra costs of renting that you mention like heating or moving aren’t inherent to renting the way that rates, interest payments and maintenace are to buying. They’re possible costs that can be gotten around by research. You don’t have to spend thousands moving and its not like every house bought is a 7 star energy efficient place.

arescarti42 said :

thebrownstreak69 said :

arescarti42 said :

Case in point is the ~70% of investment properties that are negatively geared, the average loss is being ~$4300 a year. That axiomatically shows that the cost of renting is typically less than owning, on average to the tune of $4300 a year (for an investment property at least).

That doesn’t take into account depreciation of fixtures and fittings, and also doesn’t take into account the cost of the managing agent (which isn’t required on a PPOR).

Be careful with figures like this, they can be misleading.

As far as I’m aware depreciation is typically included in negative gearing losses. It’s a cost incurred by both investors and owner occupiers.

You’re dead right about management costs though, they didn’t occur to me and do lessen the negative gearing comparison.

Yeah but investors claim this on their tax, owner occupiers done’t, meaning that although the costs are indeed borne by each, the $4300 number would need to be adjusted to make it an apples with apples comparison.

Arrow said :

Genie said :

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move.

Wrong.

If you have a lease and you pay your rent, you cannot “be given notice at any given time to pack up and move”. You have security until the end of the lease.

I know there are plenty of renters out there who don’t know their rights and think they have to leave at any time, but you don’t. Even if the house is sold to a new owner.

Of course, when the lease expires, you may be told to leave. But in 12 years renting in Canberra, I’ve never had that happen. Landlords with decent properties are keen to keep good tenants – especially in the current climate – and will almost always want to keep you on.

Make sure you renew the lease, obviously – don’t go month to month.

As I’ve posted on here before, my last landlord was a nightmare. The house was mouldy and we constantly had to battle with mould. If something was broken, the landlord himself would come around and fix it. So we’d be having a quasi-inspection whenever that was.

We’d also get no notice that he was turning up. The closest we got to notice was maybe a call 10 minutes before he turned up but that was a rarity. The majority of the time the notice was nothing more than looking out the window and seeing his car in the driveway and him walking up the driveway. Then we’d have to wait for him to fix things while his goofy mute son would follow him around the house like a puppy.

The last straw was when I had been studying at a library all day on my birthday, I’d been receiving calls from private numbers which I couldn’t answer for obvious reasons in the library. When I took a break and went outside my phone rang again from a private number. It was my parents giving birthday wishes, so I chalked up the other missed calls from private numbers as birthday well wishers. Instead when I got home, not 10 minutes after I arrived the landlord turns up unannounced full of fury about us reporting the mould issue (I think at that point for the 4th time to the 5th property manager we’d had) and to compound it I had not answered the phone when he had rung. I had explained to him that I was at the library and couldn’t answer calls straight away and that he had not left a message nor called from a number that I could see so how could I have possibly known?

That didn’t go over well and he just broke into threats of “I want you people out! This house was perfect before you people! (an absolute filthy lie)” in front of my mrs and two small kids. It took every fibre of my being not to retaliate both verbally and physically.

We moved out shortly after.

Highlights were:
* $1200+ per quarter electricity bills.
* Heater broke just before one winter, it took 4 months to get it fixed. (didn’t reduce electricity usage though)
* Oven element broke, took 2 months to get fixed.
* Mould in every wall and window sill.
* Moisture to the point it would run down walls and cause power points to start sparking.
* Insulation that was never inspected.
* Light sockets that would burn out their bulbs in under 2 weeks.

Not fun at all. I haven’t seen it rented out yet.

devils_advocate said :

arescarti42 said :

devils_advocate said :

Which assets are depreciating? Does that apply equally to people who “buy” (to the extent possible in ACT) land as opposed to, say, a unit?

Well dwellings are falling in value, so both the land and the capital component are depreciating I’d say.

My point was really why would you pay a premium to buy now, when you can rent something for considerably less, save the difference, and buy in the future when prices are lower?

well there’s a difference between depreciation and mere falls (fluctuations) in value.

Depreciation usually refers to situations where the asset is actually reducing in its inherent value (i.e. a car becoming older, a building becoming older, etc). It is usually quantifiable in terms of a set proportion of the value reducing over the term of its life. Hence the need to distinguish between buildings (which decline in value) and land (which generally appreciates).

The problem with your strategy is that (save for situations like Japan) it requires an ability to pick the market. The risks are assymetric in one sense – prices go up on the elevators but down on the escalators. Trying to pick the bottom of the cycle is risky.

All fair points.

To clarify, I was using depreciate in the general sense, not the accounting sense.

thebrownstreak69 said :

arescarti42 said :

Case in point is the ~70% of investment properties that are negatively geared, the average loss is being ~$4300 a year. That axiomatically shows that the cost of renting is typically less than owning, on average to the tune of $4300 a year (for an investment property at least).

That doesn’t take into account depreciation of fixtures and fittings, and also doesn’t take into account the cost of the managing agent (which isn’t required on a PPOR).

Be careful with figures like this, they can be misleading.

As far as I’m aware depreciation is typically included in negative gearing losses. It’s a cost incurred by both investors and owner occupiers.

You’re dead right about management costs though, they didn’t occur to me and do lessen the negative gearing comparison.

Genie said :

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move.

Wrong. If you have a lease and you pay your rent, you cannot “be given notice at any given time to pack up and move”. You have security until the end of the lease.

I know there are plenty of renters out there who don’t know their rights and think they have to leave at any time, but you don’t. Even if the house is sold to a new owner.

Of course, when the lease expires, you may be told to leave. But in 12 years renting in Canberra, I’ve never had that happen. Landlords with decent properties are keen to keep good tenants – especially in the current climate – and will almost always want to keep you on. Make sure you renew the lease, obviously – don’t go month to month.

arescarti42 said :

Case in point is the ~70% of investment properties that are negatively geared, the average loss is being ~$4300 a year. That axiomatically shows that the cost of renting is typically less than owning, on average to the tune of $4300 a year (for an investment property at least).

That doesn’t take into account depreciation of fixtures and fittings, and also doesn’t take into account the cost of the managing agent (which isn’t required on a PPOR).

Be careful with figures like this, they can be misleading.

arescarti42 said :

devils_advocate said :

Which assets are depreciating? Does that apply equally to people who “buy” (to the extent possible in ACT) land as opposed to, say, a unit?

Well dwellings are falling in value, so both the land and the capital component are depreciating I’d say.

My point was really why would you pay a premium to buy now, when you can rent something for considerably less, save the difference, and buy in the future when prices are lower?

well there’s a difference between depreciation and mere falls (fluctuations) in value.

Depreciation usually refers to situations where the asset is actually reducing in its inherent value (i.e. a car becoming older, a building becoming older, etc). It is usually quantifiable in terms of a set proportion of the value reducing over the term of its life. Hence the need to distinguish between buildings (which decline in value) and land (which generally appreciates).

The problem with your strategy is that (save for situations like Japan) it requires an ability to pick the market. The risks are assymetric in one sense – prices go up on the elevators but down on the escalators. Trying to pick the bottom of the cycle is risky.

arescarti42 said :

Well the thing is it usually costs considerably more. Even if the mortgage for a certain place is exactly the same as renting it, you’re ignoring all the other costs that home ownership entails (rates, insurance, stamp duty, repairs, maintenance, body corporate fees, etc).

Then you also have to factor in costs relating to renting, like the cost of moving – removalists, end of lease cleaning, etc – every few years or if you’re unlucky more often. One such move would easily add up to what my annual rates cost me.

Most first home buyers get stamp duty concession (ie. pay $20) and the first home buyer grant.

And maintenance is a cost factor, unless you buy a brand new house, which should see you through the first few years without too many extra costs.

Then there is the fact that you almost inevitably pay more for heating (and cooling) in rentals because no one invests in insulation, which people do tend to do if they own their home. I paid close to $1,000 a quarter just for gas heating in winter in my last rental and am moving to a smaller place with a 6 star energy rating which will have all the appropriate window coverings, etc. Will report back when I have the figures but I expect a substantial saving there.

Like for like, it really isn’t that much of a difference, even in the first few years of owning. And of course, the rents will inevitably go up over time, but the mortgage repayments will stay the same for as long as the interest rates do.

And no one can kick you out of course or invade your privacy every few months to check if you dusted well enough and if your lawn is neat enough. And that is worth a bit of extra money to most people.

Genie said :

arescarti42 said :

If you’re buying now, all you’re doing is paying a considerable premium to own a depreciating asset.

Key word there is own !

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move. Or you could be dealing with a nightmare landlord who refuses to fix anything.

Absolutely, there’s obviously instances where people are happy to pay a premium for that.

Genie said :

When the property is yours you don’t have to wait for someone to fix things.

True. Although you do have to pay for it to be fixed, which you don’t if you’re renting.

Genie said :

Who cares if it might cost a little bit more a week. But these days most mortgages are on par to renting.

Well the thing is it usually costs considerably more. Even if the mortgage for a certain place is exactly the same as renting it, you’re ignoring all the other costs that home ownership entails (rates, insurance, stamp duty, repairs, maintenance, body corporate fees, etc).

Case in point is the ~70% of investment properties that are negatively geared, the average loss is being ~$4300 a year. That axiomatically shows that the cost of renting is typically less than owning, on average to the tune of $4300 a year (for an investment property at least).

devils_advocate said :

Which assets are depreciating? Does that apply equally to people who “buy” (to the extent possible in ACT) land as opposed to, say, a unit?

Well dwellings are falling in value, so both the land and the capital component are depreciating I’d say.

My point was really why would you pay a premium to buy now, when you can rent something for considerably less, save the difference, and buy in the future when prices are lower?

Oh – the source for the 1% drop in Canberra values is here: http://www.canberratimes.com.au/act-news/housing-market-slowdown-20130630-2p5ma.html

This link has different figures – down 8.7% for the quarter and 7.2% for the year. Ouch. http://www.propertyobserver.com.au/australian-capital-territory/canberra-median-house-prices-down-a-statistical-87-as-property-market-treads-water-in-march-quarter-reia-report/2013061262200

arescarti42 said :

If you’re buying now, all you’re doing is paying a considerable premium to own a depreciating asset.

Key word there is own !

Renting doesn’t give you very good security, you can be given notice at any given time to pack up and move. Or you could be dealing with a nightmare landlord who refuses to fix anything.

When the property is yours you don’t have to wait for someone to fix things.

Who cares if it might cost a little bit more a week. But these days most mortgages are on par to renting.

milkman said :

When considering whether it’s cheaper to buy or rent, look past just the first year or two and thinking about what will happen down the track. It’s usually cheaper to rent than buy until a few years have passed, then it’s cheaper to be paying off a property.

Some people claim that ‘rent and invest’ works better, but I’ve never met anyone who has done it succesfully. If you are paying off your home you can also make extra repayments which reduces future interest, and this benefit is untaxed, unlike other investments that provide a return.

Housing is more affordable now than a few years ago, and is likely to continue that slide for a while. Be careful, though: don’t be one of these people who think’s you will swoop in and pick up a cheap house when the economy melts down, because it is almost certain not to happen.

No. Your logic may well be sound when the market is rising fast – which did happen from 2003-2009 – because prices rose faster than people could save to keep up.

But notsince.

Basically, the bigger your loan, the more money you are wasting paying interest. Every extra dollar you borrow is two that you have to repay. Saving up longer (while you rent) and then having a smaller loan (thus smaller interest repayments) will put you ahead almost immediately, and then you get further ahead every year.

I wouldn’t buy a house today when they are getting cheaper every quarter. Interest rates are at record lows and even that isn’t helping – the Canberra market still dropped 1.1 percent over the last 12 months.

milkman said :

When considering whether it’s cheaper to buy or rent, look past just the first year or two and thinking about what will happen down the track. It’s usually cheaper to rent than buy until a few years have passed, then it’s cheaper to be paying off a property.

Some people claim that ‘rent and invest’ works better, but I’ve never met anyone who has done it succesfully. If you are paying off your home you can also make extra repayments which reduces future interest, and this benefit is untaxed, unlike other investments that provide a return.

Housing is more affordable now than a few years ago, and is likely to continue that slide for a while. Be careful, though: don’t be one of these people who think’s you will swoop in and pick up a cheap house when the economy melts down, because it is almost certain not to happen.

I think your point is more a simple correlation rather than proof that investing doesn’t work.

People who do it successfully will usually eventually buy a house anyway for various reasons such as diversification or security, which is part of the reason why you dont meet many who aren’t home owners as well.
There are also a lot of people who lack the discipline to do it, they waste the excess money on unnecessary items.
And then there is the large group of people who simply don’t earn enough income to buy a house anyway. They’re locked into permanent renting.

arescarti42 said :

+1000 to everything that Tetranitrate said.

The report that Watson mentions is probably the Buy versus Rent Report which is done by RP Data.

They found that out of 110 localities in the ACT, it was cheaper to buy than rent in a grand total of 3. This is particularly impressive because the report is biased towards home ownership, by not taking in to account costs associated with ownership such as rates, body corporate levies, stamp duty, legal fees or the opportunity cost of a 10% deposit.

If you’re comparing like for like, then renting is almost always considerably cheaper.

What makes this really remarkable is that renting remains cheaper despite the lowest interest rates in Australian history, and historically high rents.

If you’re buying now, all you’re doing is paying a considerable premium to own a depreciating asset.

Which assets are depreciating? Does that apply equally to people who “buy” (to the extent possible in ACT) land as opposed to, say, a unit?

Tetranitrate said :

I find these anecdotes very difficult to reconcile with the numbers I’m seeing.

CBA Standard variable rate is 6.15%. Gross rental yields even in Canberra tend to be around 4.6%, but are no doubt slowly falling now.

Nobody pays the standard variable rate. That is basically a worst-case scenario if you have no assets, no savings, and something bad on your credit history. As an indication, someone with a stable job (this is Canberra we’re talking about, after all) should be able to get around 4.9 per cent fixed for 5 years.

That’s a snapshot analysis over the short-run (over which I conceded that buying is more expensive but not greatly so). Over the medium term, the game can change.

miz said :

Given the drop in rents, all those letters recently sent out by Housing ACT about rent rises should be retracted and reviewed immediately.

why? If the private market rents are going down and the public housing rents are going up wouldn’t that suggest that some of people at the top end of public housing market will move out into private housing.

dungfungus said :

rosscoact said :

dungfungus said :

rosscoact said :

I dropped the rent on my unit by 15% when it became vacant a couple of weeks ago. It’s still vacant.

I am looking for a new abode. What suburb is it in and how much a week are you looking for (less 15%)?

I know I’m going to regret this…….

The flat is in Gungahlin and it’s $325 per week.

It was a unit yesterday and now you describe it as a flat? Sounds a bit dodgy but details are now on the noticeboard at AMC.

I’m not going to debate reality with you Dungers. Life’s too short.

+1000 to everything that Tetranitrate said.

The report that Watson mentions is probably the Buy versus Rent Report which is done by RP Data.

They found that out of 110 localities in the ACT, it was cheaper to buy than rent in a grand total of 3. This is particularly impressive because the report is biased towards home ownership, by not taking in to account costs associated with ownership such as rates, body corporate levies, stamp duty, legal fees or the opportunity cost of a 10% deposit.

If you’re comparing like for like, then renting is almost always considerably cheaper.

What makes this really remarkable is that renting remains cheaper despite the lowest interest rates in Australian history, and historically high rents.

If you’re buying now, all you’re doing is paying a considerable premium to own a depreciating asset.

vet111 said :

miz said :

Given the drop in rents, all those letters recently sent out by Housing ACT about rent rises should be retracted and reviewed immediately.

Why? Can you not afford the increase?

I think the other large landlord in the ACT (after ACT Housing) being the ANU also put their rents up recently. This is against the reported “trend”. Can anyone explain this (in fifty words or less)?

miz said :

Given the drop in rents, all those letters recently sent out by Housing ACT about rent rises should be retracted and reviewed immediately.

Why? Can you not afford the increase?

rosscoact said :

dungfungus said :

rosscoact said :

I dropped the rent on my unit by 15% when it became vacant a couple of weeks ago. It’s still vacant.

I am looking for a new abode. What suburb is it in and how much a week are you looking for (less 15%)?

I know I’m going to regret this…….

The flat is in Gungahlin and it’s $325 per week.

It was a unit yesterday and now you describe it as a flat? Sounds a bit dodgy but details are now on the noticeboard at AMC.

What is it with people talking about property at dinner parties? I go to dinner parties and property isn’t something that comes up.

Tetranitrate said :

dungfungus said :

All landlords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

What you don’t seem to understand is that the demand for rental accommodation in a given market – ie: Canberra, is not totally price inelastic. Demand for petrol is pretty damn inelastic – most people need to drive to work, and with petrol we actually do have real concentrations of ownership.

As for renting? People can and do stay with their parents well into their 20s, spare rooms get rented out or sublet-ed, people move to quangers, yet others don’t move to Canberra in the first place, share houses become more popular.
It’s not rocket science – you can’t freely increase the rent for existing tenants, but you can set what you want when you’re looking for new ones – and if it was possible for landlords to charge more than they were already doing from 2005-2012, then why didn’t they? They charged exactly as much as they could get away with given the market at the time – and since you can’t borrow to pay your rent, there really is a limit to what people can and will pay.

It’s not like landlords can indefinitely withhold stock from the market either, so any who do sell up will be selling largely to people who would otherwise be renting or potentially renting – or to other landlords. Without any real means by which houses can be removed from the rental market without simultaneously removing demand from the other side of the market, there’s no way that the increase in rates can actually make rental housing much more scarce relative to the number of people looking to rent.
If a renter or potential renter buys a given ex rental house, they’re out of the rental market too, if an investor does, it’s still in the market. On average at least, renovations and whatnot aside.
Unless landlords start bulldozing their own houses, there’s not that much that they can do to create scarcity if there isn’t any.

The other thing is that as land tax/rates rise, prices will HAVE to fall relative to where they’d otherwise be, if not falls then slower increases *snort*, since you can’t afford quite as large a mortgage if you’re paying higher rates. Probably wouldn’t have any massive effect, but it does mean that ‘new’ landlords are unlikely to feel any particular urgent need to ‘pass on’ rates that they’ve already priced in.

I’ll bet you get invited to a lot of dinner parties in Canberra.

When considering whether it’s cheaper to buy or rent, look past just the first year or two and thinking about what will happen down the track. It’s usually cheaper to rent than buy until a few years have passed, then it’s cheaper to be paying off a property.

Some people claim that ‘rent and invest’ works better, but I’ve never met anyone who has done it succesfully. If you are paying off your home you can also make extra repayments which reduces future interest, and this benefit is untaxed, unlike other investments that provide a return.

Housing is more affordable now than a few years ago, and is likely to continue that slide for a while. Be careful, though: don’t be one of these people who think’s you will swoop in and pick up a cheap house when the economy melts down, because it is almost certain not to happen.

dungfungus said :

rosscoact said :

I dropped the rent on my unit by 15% when it became vacant a couple of weeks ago. It’s still vacant.

I am looking for a new abode. What suburb is it in and how much a week are you looking for (less 15%)?

I know I’m going to regret this…….

The flat is in Gungahlin and it’s $325 per week.

dungfungus said :

All landlords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

What you don’t seem to understand is that the demand for rental accommodation in a given market – ie: Canberra, is not totally price inelastic. Demand for petrol is pretty damn inelastic – most people need to drive to work, and with petrol we actually do have real concentrations of ownership.

As for renting? People can and do stay with their parents well into their 20s, spare rooms get rented out or sublet-ed, people move to quangers, yet others don’t move to Canberra in the first place, share houses become more popular.
It’s not rocket science – you can’t freely increase the rent for existing tenants, but you can set what you want when you’re looking for new ones – and if it was possible for landlords to charge more than they were already doing from 2005-2012, then why didn’t they? They charged exactly as much as they could get away with given the market at the time – and since you can’t borrow to pay your rent, there really is a limit to what people can and will pay.

It’s not like landlords can indefinitely withhold stock from the market either, so any who do sell up will be selling largely to people who would otherwise be renting or potentially renting – or to other landlords. Without any real means by which houses can be removed from the rental market without simultaneously removing demand from the other side of the market, there’s no way that the increase in rates can actually make rental housing much more scarce relative to the number of people looking to rent.
If a renter or potential renter buys a given ex rental house, they’re out of the rental market too, if an investor does, it’s still in the market. On average at least, renovations and whatnot aside.
Unless landlords start bulldozing their own houses, there’s not that much that they can do to create scarcity if there isn’t any.

The other thing is that as land tax/rates rise, prices will HAVE to fall relative to where they’d otherwise be, if not falls then slower increases *snort*, since you can’t afford quite as large a mortgage if you’re paying higher rates. Probably wouldn’t have any massive effect, but it does mean that ‘new’ landlords are unlikely to feel any particular urgent need to ‘pass on’ rates that they’ve already priced in.

Genie said :

Arrow said :

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

How is renting “far, far cheaper than buying” ?

My partners mortgage is significantly cheaper than what it costs our friends living down the road in a comparable property.

I’ve just bought a house and my mortgage is more than $100 cheaper a week than what the property a few doors down is currently advertised for rent.

I find these anecdotes very difficult to reconcile with the numbers I’m seeing.

CBA Standard variable rate is 6.15%. Gross rental yields even in Canberra tend to be around 4.6%, but are no doubt slowly falling now. Units are very different, but are being hit the hardest too.
Yes the actual market is granular, but I find it hard to believe these examples are really comparing apples with apples. ie: same # bedrooms/bathrooms, same age, same bloc size, generally similar build, same-ish floorspace, ect.

Most of the published comparisons that I’ve seen in the papers claiming it’s cheaper to buy than rent turn out to be making blatant omissions (like ignoring the opportunity cost of a deposit on an 80% ltv) – it’s reasonable to compare with an interest only mortgage, but analysis that ignores the opportunity cost of a large 5 or 6 figure sum can’t be taken seriously.

I just don’t see how the numbers can add up unless you’ve got capital growth. People keep repeating annecdotes, but I fail to see how you can come out ahead by paying ~6.15% (plus some for amortization, but that’s not a ‘cost’ that you lose) for an asset that’s stagnating in price and will probably suffer at least modest falls in the near future (and one that faces increases holding costs over the coming years ala tripple ur rates ) when rents are lower. It just doesn’t work. You can’t have a situation where the cost of capital is 6.15%, landlords are getting 4.6% gross – which is what tenants are paying, yet somehow it works out cheaper to buy then rent. That doesn’t make any sense. Especially when you don’t pay for rates or any kind of upkeep when renting.

Yes if you have capital growth you start seeing circumstances where it’s worth it, and there are lots of good calculators for this – but there is no capital growth. Not even CPI. Sweet bugger all since 2010. ABS index was 147.6 in 2010-11, as of march Quarter 2013 it’s 148.5. 0.6% in 3 years.
http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/D07B24714EC13CEECA257B6300143217/$File/64160_mar%202013.pdf
Yes some individuals may have gotten gains – but others will have eaten losses.

Falling interest rates have closed the gap a bit for sure, but the rental market is now way, way softer than it was couple of years ago and it’s only going to get even softer for the foreseeable future, especially if the mad monk gets in. It seems like a really dumb time to jump in. Post tax interest rates on savings for most people are admittedly barely more than inflation, but Canberra house prices are doing worse than inflation and are barely more than 0. You can do better with shares too.
Unless house prices actually started really rising again or interest rates dropped to the point that they really closed in on rents, I just can’t see how you can come out ahead.
Obviously there are other reasons to buy – unless you’re in public housing it’s a very bad idea to start a family in Canberra/Australia unless you ‘own’ your own home, but buying being cheaper than renting doesn’t appear to be one of them.

There are markets in the US though where it really is cheaper to buy then rent and where landlords are making a killing, getting gross 150% or 200% what they’re paying in interest – you don’t need b*llshit anecdotes to understand a ‘fact’ when that ‘fact’ is actually true because the numbers will add up.
Seriously, someone explain to me:
If you have a market where people are still negatively gearing themselves, how can you simultaneously make the claim that it’s cheaper to buy then rent? it’s totally self contradictory.

If there’s capital growth then yes, it could be worth buying, but there’s no capital growth and no prospect of it in the near to medium term future. boomers are reaching retirement age and even the ‘better’ side of politics is hell-bent slowly slicing the APS to the bone.

Where are these mythical places that are cheaper to buy than to rent?

I’ve lived in a number of houses over the last 5 years and each has been significantly cheaper to rent. My current place would be around $250 a week cheaper to rent.

In that time I’ve saved a significant deposit to buy but I just can’t see the value, although admittedly its gotten better in the last couple of years.

Given the drop in rents, all those letters recently sent out by Housing ACT about rent rises should be retracted and reviewed immediately.

rosscoact said :

I dropped the rent on my unit by 15% when it became vacant a couple of weeks ago. It’s still vacant.

I am looking for a new abode. What suburb is it in and how much a week are you looking for (less 15%)?

Watson said :

Arrow said :

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

Not true. I just bought an entry level house (it’s a sh!tbox in terms of how tiny and ugly it is, but brand new, so no extra costs) and I will be paying only about $50 a week more than what I was paying for my 2br rental in the Inner North 6 months ago. And the money I’ll save on gas heating compared to my rental might well cover most my rates. Yes, I will live in a godawful development in The ‘Gung as opposed to riding distance from the city and trendy cafes. But that is not really relative in this discussion.

The ‘far, far cheaper’ argument is simply not true. And especially not for units. I read a report someone linked to from here recently (you had to register to read it though) in which they compare average rents to mortgage repayments per suburb. The only ACT properties that made the list were Franklin units, if I remember correctly. Could’ve been Crace… But in some other areas the difference was almost negligible.

I waited 10 years for the real estate bubble to burst. It is a stupid strategy. Everyone is holding off buying and selling now until after the elections (great time to buy, I reckon), then there’ll be frantic activity for a while, then it will be business as usual. House prices will fluctuate, but the long-term trend will always be up.

Watson speaks the truth.

Arrow said :

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

How is renting “far, far cheaper than buying” ?

My partners mortgage is significantly cheaper than what it costs our friends living down the road in a comparable property.

I’ve just bought a house and my mortgage is more than $100 cheaper a week than what the property a few doors down is currently advertised for rent.

SheepGroper said :

dungfungus said :

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.

No. Rents can only be increased for a tenant at certain intervals. My agent tells me the rent’s up for review and gives a recommendation. It’s up to me whether I increase by the suggested amount, a lower one or not at all. The recommendation has nothing to do with how profitable that particular property is for me.

Read #3.

That’s insane rental prices. My mortgage is just over 500 per week.

Arrow said :

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

Not true. I just bought an entry level house (it’s a sh!tbox in terms of how tiny and ugly it is, but brand new, so no extra costs) and I will be paying only about $50 a week more than what I was paying for my 2br rental in the Inner North 6 months ago. And the money I’ll save on gas heating compared to my rental might well cover most my rates. Yes, I will live in a godawful development in The ‘Gung as opposed to riding distance from the city and trendy cafes. But that is not really relative in this discussion.

The ‘far, far cheaper’ argument is simply not true. And especially not for units. I read a report someone linked to from here recently (you had to register to read it though) in which they compare average rents to mortgage repayments per suburb. The only ACT properties that made the list were Franklin units, if I remember correctly. Could’ve been Crace… But in some other areas the difference was almost negligible.

I waited 10 years for the real estate bubble to burst. It is a stupid strategy. Everyone is holding off buying and selling now until after the elections (great time to buy, I reckon), then there’ll be frantic activity for a while, then it will be business as usual. House prices will fluctuate, but the long-term trend will always be up.

Arrow said :

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

I reckon it’s cheaper but not far, far cheaper. Bear in mind asking prices are sticky – a lot of vendors/rea’s haven’t adjusted their expectations and houses are either staying on the market a lot longer or selling for well below their advertised asking price.

Your strategy to wait the market out makes sense if you are the only buyer in the market, but I suspect the reason it might not work is because everyone else is thinking the same as you.

Renting is far, far cheaper than buying. There are still no “cheap” houses to buy in Canberra. But renting is looking quite nice, especially with so many new apartments desperate for tenants.

I am renting a nice house and it’s $1000 per month CHEAPER than the cost of repayments on buying a worse place – an entry-level sh#tbox. I’m saving up nicely and biding my time. Two years or so from now, when the Canberra job cuts have really started to bite and when enough “investors” have realised their rental properties are losing them money… that’s when buying will start to stack up.

Ben_Dover said :

Jim Jones said :

All the French Muslim schoolchildren are to blame.

Anything to say about rents Jim? You tedious bore.

What a constructive post!

I simply popped through to put dungusfungus’s economic credentials into perspective.

Jim Jones said :

All the French Muslim schoolchildren are to blame.

Anything to say about rents Jim? You tedious bore.

dungfungus said :

arescarti42 said :

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

All the French Muslim schoolchildren are to blame.

I dropped the rent on my unit by 15% when it became vacant a couple of weeks ago. It’s still vacant.

dungfungus said :

arescarti42 said :

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

Actually your petrol argument proves the opposite point to what you were trying to make. As with petrol, landlords will charge as much – but only as much – as teh market will bear. Despite recent experience, that cuts both ways (and now it’s working to the advantage of prospective tenants).

arescarti42 said :

dungfungus said :

arescarti42 said :

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

The markets for petrol and rental accommodation are completely different. For a start, the market for petrol in Sydney is a completely different one to that in Canberra (because if you live in Canberra, you can’t economically buy petrol in Sydney) but I wont go in to that.

What you’re suggesting is that the price for rental accommodation can increase universally, and it wont affect demand for rental accommodation one iota (in economic terms, that demand for rentals is completely inelastic).

I’ve got news for you, it isn’t. Households adapt. As prices increase, people share house more, move back to their parents, buy instead of rent, or move away from Canberra altogether reducing demand.

That’s why rents are falling now, and fast. It’s not landlords deciding “hey, my costs were lower this year, I’m going to be nice and pass it on to my tenant”. There’s massive supply coming on to the market, and in order to actually rent it all, prices need to drop to induce more demand.

This isn’t some personal crazy theory of mine, it’s economics 101.

+1000. To add to that, there’s ‘substitutability’.

Rent is not a good as such – is is part of a larger market called housing.

People choose between renting and buying a house. With house prices falling, and money on sale for cheap (5% interest rates!) I imagine a lot of people are opting to buy rather than rent. The availability of cheaper substitutes will cause the ‘price’ of a good to fall.

dungfungus said :

arescarti42 said :

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

The markets for petrol and rental accommodation are completely different. For a start, the market for petrol in Sydney is a completely different one to that in Canberra (because if you live in Canberra, you can’t economically buy petrol in Sydney) but I wont go in to that.

What you’re suggesting is that the price for rental accommodation can increase universally, and it wont affect demand for rental accommodation one iota (in economic terms, that demand for rentals is completely inelastic).

I’ve got news for you, it isn’t. Households adapt. As prices increase, people share house more, move back to their parents, buy instead of rent, or move away from Canberra altogether reducing demand.

That’s why rents are falling now, and fast. It’s not landlords deciding “hey, my costs were lower this year, I’m going to be nice and pass it on to my tenant”. There’s massive supply coming on to the market, and in order to actually rent it all, prices need to drop to induce more demand.

This isn’t some personal crazy theory of mine, it’s economics 101.

dungfungus said :

If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

Thankfully we’re not.

I was in Sydney on Saturday and the going rate for 91RON seemed to be 157.9 or higher.

Even after the supposed large spike in ACT fuel prices in the last day or so the BP at Kingston was 148.9 this morning, while BP Phillip was 146.9 (or thereabouts).

dungfungus said :

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.

No. Rents can only be increased for a tenant at certain intervals. My agent tells me the rent’s up for review and gives a recommendation. It’s up to me whether I increase by the suggested amount, a lower one or not at all. The recommendation has nothing to do with how profitable that particular property is for me.

arescarti42 said :

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

All landords are going to receive the rates increase and collectively they will all increase the rent commensurately.
If your argument had any credibility we would be paying the same price for petrol in the ACT as Sydney people are.

bundah said :

I wonder whether that applies to the old south or inner north?

You can make all sorts of graphs here, the graph of vacancies looks interesting.

dungfungus said :

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

That’s not how it works. Rents are set by the market, not by the need for owners to recover their costs.

Try and charge above market rent and you’ll just end up with an empty rental.

Good to see, and the falls in rents are presumably being reflected in purchase prices, too. If this town is ever to achieve genuine economic diversification it needs to become much more affordable, particularly for people who don’t have the relative certainty and comfort of a public sector income.

Great for the unit dwellers.

But $5 on a $480 rent is hardly something to woot about. Better than them going up, I suppose.

Thank heavens my renting days will be officially over tomorrow! Knowing my luck, you can expect to see the house prices plummet in the next few years.

This will only last until the rapacious landords receive their next rates notices. The increase will be passed onto the oppressed tenants at the first opportunity the lease gives them.

Well,it was good for us explotitive classes whilst it lasted. Farewell old friend!

I wonder whether that applies to the old south or inner north?