Renting vs Buying in 2025: What the Numbers Really Say
Few financial decisions weigh more heavily on young Australians than whether to rent or buy a home. For many, it is not a choice at all. With the median house price in major cities now exceeding ten times the average income, buying is simply out of reach.
But for those who are in a position to decide, the question remains: is it better to rent and invest, or stretch into a mortgage and own?
The appeal of homeownership is deeply ingrained. Rent money is dead money. Property always goes up. You are paying off someone else’s loan. That is the pitch. But that pitch rarely mentions the costs: stamp duty, council rates, water bills, ongoing maintenance, and tens or even hundreds of thousands in interest over the life of a loan.
So what actually delivers better financial outcomes in the current market?
Two economists, Dominic Crowley and Shuyun May Li, tried to answer that — not in theory, but through historical and predictive modelling. Their original paper, now updated for 2025 conditions, compared the outcomes of buying versus renting in every Australian capital city across multiple decades and under various future scenarios.
How the Comparison Works
The model compares two households over a ten-year period.
In the first scenario, the buyer puts down a 20 per cent deposit on a median-priced home. They take out a loan, pay interest, and stay in that property for ten years before selling. The model deducts all associated costs — stamp duty, insurance, council rates and agent fees — then calculates the net gain in today’s dollars.
In the second scenario, the renter puts the same deposit into a balanced investment portfolio of shares and term deposits. They rent a similar property and move three times over the decade, incurring moving expenses and short-term rent overlap. Dividends are reinvested, and capital gains tax is applied at the end.
This is not a lifestyle comparison. It does not account for emotional security or the flexibility to renovate. It is simply a financial analysis: where do you end up with more money?
The Results: Past and Present
In their updated modelling, Crowley and Li found that in the vast majority of historical periods, owning outperformed renting. From 1983 to 2005, buying beat renting in more than 80 per cent of cases across all capital cities.
Sydney and Melbourne showed particularly strong results. In Sydney, buying was the better option in every year but four. In Melbourne, it was the better option in all but six.
But the economists did not stop there. Recognising that historical performance is not a forecast, they modelled 144 potential future scenarios based on current price levels, interest rates, rental yields and investment returns.
For Sydney in 2025, buying was the superior strategy in 100 per cent of scenarios. In Melbourne, buying was better in around 70 per cent. For the other capitals, the result was mixed. Some cities leaned slightly toward buying, others were too close to call.
What Is Different in 2025?
Interest rates are no longer falling. The cash rate is sitting above 4 per cent, compared to near-zero levels during the pandemic. Property prices have stabilised in some markets but remain high relative to incomes. Rental shortages are driving higher rents, but also higher yields for investors.
This shift changes the maths. With higher borrowing costs, the advantage of buying narrows, particularly for those who need to move often or stretch into debt just to enter the market.
Still, the long-term benefit of leveraged gains from property ownership remains strong — particularly if the owner stays put, avoids frequent transaction costs, and benefits from modest capital growth.
When Renting Makes More Sense
The data is clear: timing matters.
Buying at the top of the market, particularly with rising interest rates, can flatten or even reverse financial gains. Renting while investing well can sometimes outperform homeownership, particularly if rental costs are low compared to mortgage repayments.
Crowley and Li also note that investors who rent and invest the difference — rather than spend it — tend to come out ahead of renters who save conservatively. This highlights the importance of discipline when renting. To make the strategy work, the money not spent on ownership needs to be actively working elsewhere.
The Real Risk in the Market Today
One of the biggest unknowns is interest rates. The original study period captured decades of rate declines, which supercharged home price growth and made borrowing cheaper year on year.
But rates have now risen and stabilised. It is unlikely we will see another cycle where rates halve again. That means future gains from property may be slower. Buyers entering in 2025 need to consider the likelihood of flat or modest capital growth, at least in the short term.
At the same time, long-term renting is becoming harder. Vacancy rates are near record lows in many cities, and rental prices continue to climb. Flexibility comes at a cost, and that cost is increasing.
So Should You Buy or Rent?
The answer is: it depends. And that is not fence-sitting — it is simply honest.
If you are planning to stay in one place for ten years or more, and you can afford the repayments without straining every dollar, buying remains a sound strategy. It locks in housing costs, builds equity, and offers a level of stability renting does not.
If your job, lifestyle or family plans require flexibility, or if you cannot yet afford to buy where you want to live, renting and investing remains a valid path. But it requires financial discipline and a clear investment plan to ensure your money is still working for you.
Final Thought
The real takeaway from Crowley and Li’s updated 2025 research is this: there is no universal rule. Yes, owning a home has historically delivered better financial outcomes — but not always. Timing, location, lifestyle, and discipline all play a role.
For would-be buyers in today’s market, the best advice may be the simplest.
Know your numbers. Understand your goals. And if in doubt, speak to a professional who does not have a stake in selling you a mortgage or a rental agreement.
Because in 2025, the smartest move might not be the one you’ve always been told is right.