Renting vs buying- the old chesnut revisited

Here is a link to the paper that the article is based on:

An NPV Analysis of Buying Versus Renting for Prospective Australian First Home Buyers
An NPV Analysis of Buying Versus Renting for Prospective Australian First Home Buyers by Dominic Crowley, Shuyun May Li :: SSRN

 

One of the reasons these sorts of studies often disagree is they're typically short. A real estate cycle lasts a decade at least, often two - so even a 30 year study can have skewed results. This country has just undergone a two-decade boom in property and yes, during that time property ownership outperformed renting - but would this change after a bust? Or in a time period including a recession? The US study unsurprisingly found renting a better choice, but this was not long after a severe property bust. I think to really answer this question you'd have to look over a very long period, 100 years or so, which is not always practical.

 

So going from a PPOR with say, a 300k loan that would rent ~$500pw and rentvesting something for $700pw. How does that change your Serviceability? Other IP's are self supporting.

 

Interestingly, the outcome is dependent upon "timing" of the market entry..... & in all but 2 capital city locations the projections result in an outcome of an "even call"....

Hence, rentvesting is a workable strategy...... But buying a PPOR can also be a better option, but not always.... I just love a study that is never wrong because the devil is in the detail (hint: the underlying assumptions of the analysis/model) ...... clap.......clap...... sigh.....

 

The article compares investing in a PPOR with investing in shares. It doesn't account for the option to rent and invest in property.

 

Timing and individual circumstance will greatly determine the actual result.

Too many variables in play and slight change in them will come up with different results.

 

Thanks for the link but i like this quote..

The two economists attempt to be more forward looking. They construct 144 possible future scenarios. For Sydney, 100 per cent of those scenarios suggest buying remains the best strategy. For Melbourne, buying wins in about 70 per cent of scenarios. In other capital cities, it is an even call. But of course, there are an almost infinite number of scenarios that could eventuate.

 

So in an infinite number of scenario's, 100 percent of them suggest buying in Sydney remains the best strategy.

 

Well at least they have everything covered ,problem is young economists have never seen the explosive consequences of changing the wrong variable..