Buying v renting

Nick Gerli of Reventure has an interesting graph on the cost-to-buy vs cost-to-rent dynamic, in the US.

We shared a plot of price-rent, price-income data for a variety of different countries earlier (yesterday’s notes), but the below is nice and visually striking.

The “cost-to-buy” calculation has a bunch of inputs, namely rates, tax, insurance, and an allowance for maintenance, all of which don’t (directly) impact the renter.

The takeaway is that in the past, extreme divergences have strongly suggested that house prices are overcooked, and vulnerable either to a change in expected future returns, or, the usual higher-cost-of-credit-impacts-demand channel.

We think this risk is much more acute, here in Australia, but by gosh the hit to affordability is material.

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