I spoke with someone this past week who was considering upgrading their home. Doing so would mean doubling their current mortgage.
While it’s often not wise to overextend yourself and live beyond your means, if you’re going to stretch the household budget on anything, a home makes the most sense.
My uncle, John Fitzgerald, is this week releasing the 9th edition of his book, 7 Steps to Wealth.
When he wrote the first edition in 1998 housing was Australia’s biggest asset class, with a value of $1 trillion.
Fast forward to 2024, and while plenty has changed, housing remains this country’s biggest asset class, but it’s now worth $11 trillion – a more than tenfold increase in 26 years.
We are one of the wealthiest counties per capita globally, with most of our household wealth tied up in our homes.
We owe just $2.3 trillion against the $11 trillion worth of housing – a loan-to-value ratio of just over 20 per cent.
Of the 11.1 million homes, roughly a third are owned outright (without a mortgage), a third are currently mortgaged, and a third are owned by investors and rented out.
Put another way, half of Australians who own their home do not have a debt on that dwelling.
Now, let’s look at the median house price in Australia. Since 1998, it has increased from $170,000 to almost $900,000.
There is no evidence to suggest these same trends will not continue into the foreseeable future. I estimate that the value of Australian housing will reach $20 trillion as early as the end of this decade.
Housing affordability is a big issue in Australia, sure.
But housing also presents great opportunity – a property is an appreciating asset.
Unlike clothes, cars or food, the right house in the right location will appreciate over time. It’s the biggest investment most Australians make, and rightly so!
And in fact, it’s the only way you can make a profit in Australia and not pay tax on that profit (if it’s your own home).
The great Australian dream of owning one’s home is still possible, even though it requires more of us to stretch the household budget more than it did in years gone by.
A well-located home will appreciate (grow in value). I bet the same can’t be said for most things Australians will spend money this week in the Black Friday sales.
Did you know that it’s expected that Aussies will spend as much as $8.7 billion on Black Friday – that is a whole suburb’s worth of houses!
I don’t subscribe to the arbitrary rule that one should spend no more than 30 per cent of their household income on their mortgage repayments.
Living within our means and spending less than we earn is non-negotiable, but I have seen people stretch themselves to 40 or 50 per cent of their take-home pay on their mortgage repayments and still manage to live within their means.
Many of them would say it’s one of the best things they have ever done because it’s provided them with life-changing wealth. And there’s got to be something in the adage, you’ve got to spend money to make money, right?!
Equally, I’ve seen people struggle to keep up when their mortgage only takes up 20 to 30 per cent of their take-home pay because they spend the rest of their money on depreciating items.
I guess my message is that the great Australian dream lives on – it just takes a bit more work and commitment to make the dream a reality.
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