Interesting article on houses


" Australia's obsession with the quarter-acre block and climbing on the mortgage treadmill is not for everyone, writes Alex Tibbitts.

Daniel Cox has a six-figure salary but he still rents.

"Having got my specialty qualification as an anaesthetist [last year], my income had risen quite significantly," Cox says. "Despite that, I decided not to buy a house because I could rent one much better."

The 39-year-old (pictured) has rented a five-bedroom waterfront home at Cronulla for $950 a week to share with his wife and four children, aged 5, 8, 10 and 14.

"I can watch my eldest son windsurf on the bay," Cox says.

"That's part of our decision with the renting. We choose to work less than we have to. My wife stays home rather than go to work to service a humungous mortgage and I'll work four days a week."

To illustrate the difference between renting and buying he looks next door.

"The three-bedroom house next door sold for $2.25 million," he says.

"The interest on $2.25 million is almost $150,000 [for a year at about 6.7 per cent]. That's more than three times as much [as my rent]. If you had $2.25 million sitting in the bank you could rent this house and still have $100,000 a year to live off in interest.

"I have a few hundred thousand saved and generated through investing. I could use it as a deposit towards a house but if it doesn't make sense to buy if you have the money, then it makes less sense to buy if you're borrowing the money.

"A colleague just bought a townhouse down the road for $580,000. He's going to be paying $800 a week interest and he's going to have to maintain it."

Cox says many European countries do not share Australia's obsession with buying property.

He was saved from a mortgage by his decision to return to university at age 23 to study medicine.

"Ten years ago my wife could have worked much harder and we could have had less kids so we could buy a house," he says. "I see the fact that I was a student with a child up until 10 years ago as having protected us from getting caught up in the housing bubble.

"I think if I had bought an inadequate house then I would probably be just blindly trading up all the time now, waiting to lose all my money.

"I was watching house prices grow far faster than my savings, most of the time thinking if they become more expensive they're less worth having, not more worth having."

Kevin Bailey, the executive chairman of financial planners The Money Managers, says there is not a better time to stay out of the housing market.

Bailey says property prices will drop in a recession, which he believes is due after 16 years of economic growth.

But prices would have to drop much further to convince Cox to buy.

"I'd love to own a house," he says. "I'd pay more than what I think the future cash flows of the house are worth for the security, but not three times as much. But Sydney houseprices would have to drop more than50 per cent."

If that sounds unlikely, Cox points out that property prices in Japan crashed 70 per cent when the housing bubble there burst.

"Sydney house prices have increased 150 per cent in real terms in the past 10 to 15 years," he says.

"In the long term, house prices have tracked inflation quite well. I don't think there's any reason that house prices will rise above rents and incomes forever. That's the irrational belief."



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From what I recall, the interest rate on a full home loan is about 3 times what the equivalent rent would be. You could make more money by putting it into fixed interest rather than purchasing a house. However the increase in capital value pretty much makes up for this so they are close to being equivalent - as you would expect. If there were a strong difference either way more people would shift until the difference disappeared.

Also, it is never a purely economic decision. Renting gives you far greater freedom to move around. The downside is you have to put up with inspections and being kicked out occasionally.