There was an excellent debate between Simon Castles and Karin Derkley in yesterday’s Sun Herald about buying vs renting homes in Australia.
Simon is a writer for The Big Issue and Karin is the author of Buying and Selling Your Home for Dummies and Getting Started in Property for Dummies.
I am quite opinionated about this topic but I was interested in what both sides had to say nonetheless.
Simon Castles quickly dismissed the ‘rent money is dead money’ fallacy:
…renting makes financial sense. The old argument is that “rent money is dead money” but in truth, you either rent a home or “rent” the money to buy a home. Isn’t that, in effect, what interest is? And, boy, aren’t home buyers paying a lot of that right now. Interest must feel an awful lot like dead money when you keep having to pay more of it.
and finishes brilliantly:
A home, we too easily forget, is not something that you can buy. A house you can buy but “home” you can only feel. I’ve felt at home many times – and it has never come with a big mortgage attached.
Karin Derkely’s argument is mainly around financial security pointing out that the Australian economy, and tax & social security laws are built around the idea that people own the property they live in. She also points out the capital gains tax exemption and encourages “trading up” which I believe to be one of the main contributors to our housing affordability dilemma in Australia at the moment.
Karin also discusses the benefits of having a mortgage with equity in your home. She says you can use the equity in your home to borrow money for depreciating assets: overseas trips, cars etc. The problem I see with this is that this equity makes people feel “rich” so they go and buy these things with a “rich” mindset and without thinking of the consequences. Although interest rates on home loans are lower than credit cards, home loans usually have a long repayment period so the amount of interest is still large.