20 Zealand Rd, Mont Albert is on the market with a $3m-$3.3m guide as the suburb tops Melbourne for the longest wait for rents to exceed mortgage repayments.
Melbourne’s most desirable suburbs have become so expensive homeowners could be worse off paying a mortgage than renting for decades.
And it’s helping explain why rental supply can be weak in some of the most enviable places to live, and why a negative gearing change could hurt first-home buyers.
New PropTrack modelling comparing rental income with home loan repayments shows the divide between the two is widest in some of the city’s most prestigious housing markets.
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Under the modelling, it could take more than four decades for rents to exceed mortgage repayments in the eastern suburb of Mont Albert.
It assumes an 80 per cent loan-to-value ratio on a 30-year loan at a 5.75 per cent interest rate, with rents compounded using a decade of historical rental growth.
Other affluent suburbs including Toorak, Canterbury, Hawthorn, Albert Park and Malvern East also fall into multi-decade territory, highlighting the enormous gap between purchase prices and achievable rents in Melbourne’s prestige housing markets.
99 Grange Rd, Toorak is listed with $5.8m-$6.3m hopes as one of Melbourne’s prestige suburbs where mortgage costs can outpace rents for decades.
PropTrack economist Anne Flaherty said Melbourne’s blue-chip suburbs had extremely high property values that rents often struggled to keep pace with.
PropTrack economist Anne Flaherty said the figures reflected the growing disconnect between property values and rental returns in Melbourne’s most expensive suburbs.
“The reality is that it varies quite significantly from suburb to suburb,” Ms Flaherty said.
“In Melbourne’s blue-chip suburbs we tend to see very strong price floors and extremely high property values. Even though rents in those areas are elevated, they generally do not keep pace with the purchase prices.”
The economist said the relationship between rents and property values tended to look very different in cheaper markets.
“In more affordable areas the rent relative to the value of the property is typically higher,” she said.
15 Prentice St, Elsternwick is on the market with a $2.275m-$2.5m guide as the bayside suburb ranks among Melbourne’s longest mortgage-versus-rent crossover markets.
17 Allenby Rd, Canterbury is listed with a $2.8m-$3m guide in one of Melbourne’s prestige house markets where rental income can take decades to overtake repayments.
“That means the gap between mortgage costs and rental income can close more quickly.”
By contrast, several inner-city apartment markets already generate stronger rental returns, with suburbs such as Docklands, Southbank, Carlton, Collingwood and Prahran seeing rents exceed mortgage repayments under the same assumptions.
In cheaper inner suburbs the crossover point is also far quicker.
In Brunswick East the gap closes in about one month, while in St Kilda it takes roughly seven months for rents to overtake repayments.
Ms Flaherty said the findings also highlighted the important role investors played in supplying rental housing across the city.
“If fewer investors purchase properties in a particular area and there are still people wanting to rent there, that can tighten rental availability and potentially push rents higher,” she said.
PIPA chair Cate Bakos warned investors facing years of losses without tax relief could look beyond property or shift towards higher-yielding suburbs.
PIPA chair Cate Bakos said extremely long periods of negative cashflow would deter many investors if tax incentives were reduced.
“I think any investor who is staring at losses year after year without tax relief will revert to an alternative asset class that doesn’t sustain losses and doesn’t command maintenance or hefty taxes like land tax,” Ms Bakos said.
She said most investors entered the property market with a long-term horizon but still expected losses to be manageable.
“Ten to 15 years is broadly accepted by investors as part of a property investment journey,” she said.
“When earn-out periods stretch beyond 20 years it absolutely changes investor appetite.”
Ms Bakos said any move to cap negative gearing at two properties would likely push investors towards areas where rental yields were stronger.
“If tax incentives are reduced, investors will gravitate towards properties that either break even sooner or move towards positive gearing more quickly,” she said.
“That could place additional pressure on entry-level suburbs where rental yields are higher.”
She said while some buyers might benefit from reduced investor competition, the broader impact on rental supply could be significant.
“If investors exit the market or redirect their money into different assets, it reduces the number of properties available for tenants,” Ms Bakos said.
“That can ultimately place more pressure on the rental market.”
Mortgage broker Damian Medici said most investors still chased long-term capital growth, but negative gearing could materially affect borrowing power.
Margin Finance director Damian Medici said most investors were still motivated primarily by capital growth rather than short-term rental returns.
“I genuinely believe most investors are driven by capital growth,” Mr Medici said.
“For most Australians, property remains a long-term wealth creation vehicle.”
However, he said negative gearing could significantly influence borrowing capacity for investors.
Mr Medici modelled a scenario involving a working couple earning $100,000 each purchasing a $750,000 investment property.
With negative gearing factored into the lending assessment, their borrowing capacity sat around $1.55m.
Without the tax deductibility of losses, their borrowing capacity dropped to roughly $1.35m, making it less feasible for them to cover an investment loan as well as their existing home loan.
He said the vast majority of rental housing across Australia was supplied by private investors.
“Rental housing doesn’t appear out of thin air,” Mr Medici said.
“It’s provided by landlords.”
“If the investment environment becomes less attractive fewer people will step into that space, and that has flow-on effects for renters across the market.”
| Suburb | Median sale price | Years |
| Mont Albert | $2,425,000 | 41.8 years |
| Toorak | $5,008,888 | 35.1 years |
| Elsternwick | $2,000,000 | 32.4 years |
| Canterbury | $3,753,750 | 32.3 years |
| Albert Park | $2,430,000 | 31.8 years |
Source: PropTrack
Note: Based on modelling assuming an 80 per cent LVR loan over 30 years at a 5.75 per cent interest rate with rents compounded using 10 years of historical growth
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