With Capital cities around Australia becoming prohibitively expensive, it's without question that many people looking to buy their first home are going to find they simply cannot afford it. So why not buy outside the city?
The first reason is probably; none of us city dwellers like to commute. We have jobs, families, friends surrounding us in our cities and it can be hard to move away from that and then travel an hour each way every day just to get to work. That's more than an extra working day worth of travel every week.
The answer to this is simple, rent in the city and buy outside the city. How far outside? Depends on your own preferences. Property within two hours travel of the city typically will go up in price in relation to that city.
For example the Central Coast of NSW has a large population of city dwellers who moved there after retiring from careers in Sydney, you can get a property there cheaper than in the Western or Southern suburbs without having to worry about the crime rate or congestion.
Areas like that are great because Sydneysiders want to retire within reach of family and friends still living in the city but the further out you go, the less inflated prices are. It's a trade off. Either way you can use these investment properties to pay themselves off while you rent in the city.
There are considerations to be made however. For example if you do not live in a property for six months within the first year of ownership then you cannot claim the First home owners grant. Secondly rural and regional areas are generally less valuable for capital gains tax so you will be relying mostly on positive geared rent. Your Mortgage's calculators can help you work this out.
You also may want to consider the nature of the town. For example Central Darling is supposedly NSW's cheapest suburb for housing. However the town only has a population of a few thousand most of whom are employed by the mines. If the mines were to close down, the town would become worthless overnight. I'm not suggesting this would occur in Central Darling, merely using it as an example.