Australian house prices are 30 per cent undervalued, the widest gap in 30 years, with people better off buying a house than renting, research conducted within the Reserve Bank of Australia suggests.

This meant current prices were not “irrational” or “unusual”, RBA senior research manager Peter Tulip and co-author Ryan Fox found, Fairfax Media reported.

The change has been brought about by much lower mortgage rates and by changes in bond prices that imply mortgage rates will remain at historic lows for a further decade, he said.

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Dr Tulip delivered the preliminary findings at the Australian Conference of Economists in Brisbane Wednesday night, emphasising that they should be attributed to him and not the central bank.

In the past year, Sydney house prices climbed 16.2 per cent, Melbourne prices 10.2 per cent and national capital average prices by 9.8 per cent.

However, Dr Tulip and Mr Fox argued that rising prices said nothing about whether home ownership was good value compared with the alternative, which was renting, Fairfax Media reported.

“We find that owning a house costs 30 per cent less than renting,” Dr Tulip told the audience.

“That is, houses are 30 per cent undervalued.

“Our results suggest that those expectations currently look fairly reasonable. They do not show unusual optimism, they do not show irrational exuberance.

“But this hasn’t always been the case. Just one year ago when we last published results, we found that houses were fairly valued — that is, the cost of buying was about the same as the cost of renting.”

The pair calculated the annual cost of a bought home from the purchase price, the transaction cost, the expected mortgage rate and the running and depreciation costs offset by expected capital gains, Fairfax Media reported.

The annual cost of owning a home bought in April was likely to be 2.7 per cent of its value. The annual cost of renting the same home was likely to be 3.9 per cent.

The change in the past 12 months is partly the result of this year’s two interest rate cuts, which have brought the typical discounted mortgage rate to about 4.6 per cent.