Buying an Australian home - still worth it?

By Peter Boehm

With one of the highest owner-occupier rates in the world, home ownership in Australia remains an enormously popular ideal. Everyone wants us to own a home – we do, our parents do, even the government does (through concessions and grants).

Home ownership is said to be good for us: good for society and the economy. For the most part that’s true – home ownership does have significant advantages.

But buying a home also means you have to subscribe to some onerous financial obligations and commitments. At their most extreme, these sacrifices can far outweigh the benefits of owning a home. When you can’t afford to leave your house to see a movie, you might begin to ask if home ownership is really worth it.

The pressure to buy

 

Buying a home is an individual choice – a question of financial circumstances and lifestyle choice.

In Australia, the buying decision is affected by a number of pressures – some of which should be heeded and some of which are better ignored.

Let’s look at some of these pressures and think about whether they stack up.

 

Social pressure

Our parent’s and our grandparent’s generations saved hard to buy their homes. Home ownership was seen as the payoff for hard work and this expectation has been passed down. Many of us continue to believe in home ownership as a key life goal.

But changing social and economic trends mean that it can no longer be for everybody. As prices continue to rise, new generations of Australians might never be able to afford their own home. As a result, this social pressure to buy will decline. Home ownership will lose its place as the ‘be all end all’.

 

Emotional pressure

Home ownership has a strong emotional pull. We like the idea of a place to call our own.

But it’s important to understand that owing a house is not the same thing as having a home. As they say, a home is ‘where the heart is’. It can be any place you live in. There’s no reason that it can’t be somewhere you rent.

Indeed, renting is not owning’s poorer cousin. The fact that renting is cheaper and offers more flexibility (especially in terms of location) makes it just as valid a choice.

Financial and price pressure

Many people believe that paying rent is throwing money away. They see a mortgage as a forced savings plan: when it ends you get your money back plus interest (assuming your house increases in value).

This is a compelling reason to buy – particularly now, when interest rates are low.

With the economy picking up and housing demand still strong, many buyers are also concerned that they’ll be priced out of the market if they don’t buy now.

There’s some merit to this as well. Growth in house prices has far exceeded wages growth and the affordability gap has widened. It’s much tougher for a 25 year old to buy in a metropolitan area today than it was 25 years ago.

But buying just to beat a price rise is never a good idea. There’s no point buying what you can’t afford and making yourself a slave to your loan. If you decide to buy, be prepared to change where you’re looking and what you’re looking for to avoid over-stretching your finances (see Australia’s most affordable suburbs).

 

Investment pressure

Housing’s power as an investment adds to its appeal. As a general rule, investing in a home is a way of creating wealth and a nice tax-free nest egg. (House prices usually go up, but a number of specific factors will influence house value, including location, state of repair, demand, interest rates and other economic conditions).

While a home is an attractive investment, if you don’t think you can afford one there are plenty of alternatives – from superannuation to shares and assets such as stamps and art. There’s no reason that a house has to be the be all and end all of your nest egg.

 

Staying rational

There’s no question that home ownership offers substantial financial and other benefits.

But, when deciding whether home buying is worth it or not, you need to remain rational. Decide which pressures are guiding you – which of these are logical and which ones your decision could do without.

In the end, weighing up the sacrifice on the one hand and the payoff on the other is a task only you can undertake. But remember, a home is where you want it to be. There’s no need to own it to make it your own.

What do you think? Is buying an Australian home still worth it?

Thinking about buying a home? Visit Our Home Sweet Home for information on home buying, home loans and more.


Important information:
This information should be used as a guide only. It is neither the provision or legal or financial advice. No warranties are given as to accuracy or completeness. You should seek your own independent legal and/or financial advice.