The RBA this month released a study showing the magic number as to how much property growth is needed for it to make sense to buy rather than rent.
On a national front, the RBA has calculated home prices around Australia have only risen by an estimated 2.4 per cent each year, after adjustments for inflation and ownership costs, over the past 60 years — and that house prices would need to gain 2.9 per cent per year to provide a better option than renting.
However, property industry experts have noted the RBA’s estimates, which account for the national housing market, could fall below those being achieved in some cities and postcodes.
In my own case I came to Palm Beach way back in 1972 and bought a nice brick and tile, three-bedroom, one bathroom, single garage house for $22,000, it was about three years old at the time and in good condition.
If it had gone up by 5% compound,, which allows for a lot of outgoings, it would be worth about $165,000. I sold it in 1982 in a down market for $58,000 and today I would be quite comfortable that it is worth about $500,000.
You might be able to find somewhere in Australia that proves the RBA numbers but it won’t be the Gold Coast.
More than 30% of the building stock in Palm Beach is rented and that’s not enough to meet the demand. So, there would be a shortage of rental properties and then that would force up rents and then it would be cheaper to buy.
The other factor that affects rents and house prices and has been getting a bit of an airing lately is negative gearing.
The one and only time that a government in Australia decided to scrap it precipitated a disaster in the rental market, and they had to bring it back very quickly. That happened in the era that Bob Hawke was prime minister and Paul Keating was treasurer.
There was no exodus of investors in Palm Beach, they just cashed out as they normally do but there were no new investors, everything went to owner occupiers. Over about 18 months rents went up 50% because of the shortage of rental stock.
To reverse the situation in a hurry the government brought in a 4% per annum depreciation allowance on any property, no matter how old purchased for rental. Two budgets later the depreciation allowance was dropped to 2 ½% and there it stays today.
Some people have very short memories..