This statement will probably get me kicked out of the country, but I think buying a home is a really bad investment. I know, I know this is this is a dangerous statement to make – particularly when so many people are busting a gut to pay down their mortgages – but bear with me on this.
Buying a house is the great Australian Dream. A detached weatherboard house on a quarter acre block with a veranda out front and a hills hoist out back is, apparently, the ultimate goal for all Australians. And despite greater urban density and a marked increase in property prices, most Australians still believe that owning a home is the pinnacle of success.
I used to believe this too. I desperately wanted to buy a home and do all those things that homeowners did, like visit hardware stores on weekends and discuss interest rates and property prices at dinner. I calculated how much I could borrow, went to open houses and inspected (teeny, tiny) show homes on newly built estates. No one thought to sit me down and talk me out of it. Instead so many people reminded me that rent money was ‘dead money’, that ‘house prices always go up’, and buying a house is ‘forced savings’.
But in the end I was too reluctant to go into that much debt, to live far away from my friends and family, and to be tied down to something for so long. And now that I’m older and a little bit wiser, I can see now how close I was to making a terribly bad investment decision.
The Worst Investment You Can Imagine?
So what makes buying a home a terrible investment. Imagine if I were to ask you to describe the worst investment you could think of. You’d probably describe something that:
- Had a massive initial upfront cost with no principal repayment guarantee.
- It would have to cost at least seven times the national average wage – so of course people will have to borrow to purchase it. Oh and those interest payments aren’t tax deductible.
- And while we’re talking about interest, this investment won’t pay out any interest or dividends.
- This investment would also be incredibly illiquid and take weeks, or even months to sell, if at all. If you needed money, you wouldn’t be able to sell off just a portion of it.
- And any time you did buy or sell, it would come with massive costs – how about 5%. Plus taxes. And it should come with a lot of ongoing costs – like repairs and upkeep. No set and forget on this investment.
- Its value should also be intrinsically tied to the economy of one area. If a mine shuts down or a tourism site closes, then the value of your investment will go down. And you won’t be able to move easily because of the time it would take to sell it, plus of course you’d have to risk making a massive loss on it at a time when prices have sunk.
Now that’s a pretty scary list and any sane investor would run a mile before putting their hard-earned into such a high risk investment. But rather than run away, we’ve managed to convince ourselves that happiness and financial security lies in home ownership.
Why are we so hung up on homeownership?
So I don’t actually believe that buying a home is a bad idea. My objection is the belief (often encouraged by real estate agents, banks and well-meaning older relatives) that buying a home is always a great investment. Despite the fact that home ownership is further out of reach for my generation than any other, so many of my peers are still hung up on the idea that buying a home is the singularly most important thing you can do as an adult. At a time when marriage rates are down, and people are delaying having children, buying a house appears to be the surest way of announcing ‘Look at me. I’m all grown up now.’
But what cost does this bring to our way of life? Obviously there’s the actual costs, like the down payment, the principle and interest payments, ongoing repairs and maintenance and fees and taxes. But there’s also those other costs. Being tied to a mortgage means you are unable to just pack up and leave on a six month overseas jaunt. It makes it harder to leave a crappy job for something that would make you happier but pays less. And it’s no longer easy to just move across town or across the country just to try out a new area.
If I’d bought that off-the-plan one-and-a-half bedroom unit, I wouldn’t be where I am today. Literally. I left a well-paying job and moved cities so I could experience big city life. And it’s here that I met my boyfriend, took up dancing (both of which I love) and am taking the risk to be a freelance writer. The only reason I could do all this was because I don’t have a massive monthly mortgage payment to think about.
I’ll Buy a Home (One Day)
Despite all the above, I know that one day I’ll buy a home. Hell, I’m even saving for the deposit (but mostly that’s because of the annual 17% contribution I’m getting from the government – never pass up free money!).
Buying a home is a completely emotional decision – and that’s how it should be. You shouldn’t buy because it’ll force you to save (um, really? Surely getting payroll to set up automatic deductions from your pay is easier and cheaper). You definitely shouldn’t buy because you need to get your foot in the door before prices rise (a fallacy of the highest order). And don’t ever let anyone convince you bricks and mortar is a guaranteed safe investment.
Instead buy a house because you want a home. Because you want to stay in your neighbourhood for the next ten to twenty years. And only buy if it genuinely makes you feel more secure – financial insecurity is a poor trade off for your name on the letterbox.
Note: This article refers to buying owner-occupier housing. I’ll explore buying an investment property down the track.
Image: Original from Flickr/katsrcool
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