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    thriftgenuity says

    Although I know little about the housing market in Australia, I think this sentiment is growing in the US.  Consider a home purchase just that, purchasing a home.  Only secondarily (if at all), consider it an investment.  The economy has definitely shown that there is no safe investment.

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    thriftgenuity I think the movement against buying a house is growing, but there is still a pretty prevalent belief that ‘rent money is dead money’ and that young people should buy a house as soon as possible. Many of my friends are at the home buying stage and, although I know that they’ve done all the sums and gone in to it with the full picture, I do wonder how much of the desire to buy stems from parental and societal pressure to conform to this idea of the Australian Dream.
    Thanks for the comment!

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    BenBowring says

    Hi Nell,
    Thanks for an interesting and thought-provoking post. I came across your blog through, which I also only recently found. I have been searching for a while now for good, Australian sources on financial independence. When it rains, it pours!
    I agree that the framing of home ownership as “the Great Australian Dream”, and all of the societal pressures and expectations which that title creates, often prevents people from thinking rationally about whether home ownership is actually a good idea in their specific situation. The buy-a-home mantra makes it easy for developers and real estate agents to convince us that home ownership is alwaysa good investment, and easy for us as potential home owners to sideline all other considerations about our financial, career and lifestyle goals for the sake of “buying the number one appreciating asset that every Australian has to have.”
    You’re also right to point out the key downsides of home ownership as an investment-based decision (illiquid, negative impact on asset diversification (high cost, single asset), transaction costs).
    I think take a less pessimistic view towards home ownership though than you have presented in this post. (continued next post)

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    BenBowring says

    Your arguments about the potentially negative impacts of
    home ownership on broader financial and lifestyle goals are valid, but they are
    specific to your situation and circumstances. Applying this as a general
    argument against home ownership however makes the assumption that everyone:
    ·places a high value on inner-city living;
    ·needs the flexibility to be able to move home
    easily; and
    ·cannot afford to buy a suitable type of housing
    in the location that they currently rent.
    While this is clearly the case in your current situation
    (and I completely empathise, as my wife and I are in a very similar position
    ourselves), these criteria would not apply to everyone. For example, if you
    live in a regional centre (affordable housing) which has all of the amenities
    you want and need (shopping centres, beach etc.), you have good long-term job
    prospects in the area and have no realistic desire or need to move (perhaps all
    of your friends and family live in the area), then a lot of the downsides of
    home ownership are cancelled out.
    There are also some downsides to renting (flexibility also
    means housing insecurity at the whim of your landlord), as well as to inner
    city living (congestion, pollution, less open space etc.), which may have a
    much higher negative impact on some people.

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    BenBowring says

    Finally, there are a number of potential financial benefits
    to home ownership which you have not addressed. For example, if you do decide
    to sell your home, the government will halve the Capital Gains Tax that you are
    required to pay (as long as you have lived in the home for 12 months). If your
    house has appreciated, this could represent a significant benefit, which is not
    available to other assets. If you’re clever about your loan structure, you can
    also leverage into other types of investment using your home equity, with a
    much lower interest rate and lower risk than a margin loan. If done correctly,
    this approach allows you to “recycle” your home-loan debt by decreasing your
    non-deductible debt in place of deductible “investment” debt, and maximises the
    utility of your home equity as a source of investment capital by increasing
    your time in the market.
    Your overall argument that far too few people make a
    clear-headed appraisal of home ownership is absolutely correct. Too many people
    are duped into thinking that home ownership is a gold standard, only to realise
    that they have comprised a large number of their other goals and values in
    order to achieve it. In my view though, there are circumstances in which home
    ownership makes a lot of sense for emotional, lifestyle and financial reasons.
    (Apologies for the triple post. The site said my post was too long!)

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    BenBowring Hi Ben, firstly I want to thank you for your considered comment(s) to the my blog post. I’m glad that it has provoked such a reasoned argument as that was my intention. (Apologies but the first of your comments doesn’t seem to be showing up here, but it is approved??)
    I don’t want to address all of the points you raised because I think that they are actually valid. My intention was not to say that home ownership is wrong, rather I wanted to challenge the societal expectations around home ownership. It was sparked by my own experiences, which I mention, and also from conversations with friends that have basically intimated (and I’m paraphrasing) that they felt like they “need to buy a house”.
    There are financial benefits to buying as you mentioned, such as being able to leverage the equity to buy other property. And just like any other investment this needs to be factored in if you intend to use your home as an investment vehicle. Obviously the higher entry costs to buying a house as opposed to shares mean that this is a barrier to a lot of people.
    Anyway, thanks again for stopping by and contributing to the debate. I hope to see you around here again!

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      Thanks for sharing. Your post is really interesting for a Singaporean perspective of coming to Australia for a better way of life. Of course now plenty of Aussies are moving to SEA for the better quality of life so I guess it’s coming full circle…


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