Smart move Finance expert Michael Pascoe extols the ‘new build’
FINANCE EXPERT MICHAEL PASCOE REVEALS WHY BUILDING A FAMILY HOME REMAINS ONE OF THE BEST DECISIONS YOU’LL EVER MAKE
EVERY SECOND HEADLINE seems to warn of a housing price crash – so why would you go through the financial risk of building your own home? It’s a very fair question and the answer can be different for people in different circumstances. Here are five reasons why building your dream home is still one of the greatest investments – not only in the financial but also in the personal and emotional sense.
1IT’S YOURS This can provide satisfaction beyond financial measurement. The landlord can’t kick you out at a month’s notice. There are important welfare implications of that security of tenure, particularly for children who aren’t faced with the risk of being shunted from one neighbourhood to another. Healthy communities depend on a degree of continuity, of people putting down roots and committing to their area. Home ownership does that.
2HISTORY SAYS IT PAYS OFF A house should be viewed as a long-term commitment. Sure, every decade or two a housing market can go crazy, with rapid price rises making it profitable to flip a property quickly. That’s the exception to the rule. The “transaction costs” of housing – stamp duty, legal fees, real estate agent commission, moving expenses, council fees if building or renovating – mean it usually takes a year or more just to get to break-even. Nobody really knows if the value of an individual house will rise or fall over the next year, but population growth and an expanding economy have meant housing over time runs nicely ahead of inflation, building wealth.
3YOUR OWN HOME FORCES YOU TO SAVE
Without the discipline of paying the mortgage, it’s all too easy for savings to disappear. Along the way, you’ll build up the security of owning your home ahead of eventual retirement. The biggest single difference between a comfortable or impoverished retirement is whether or not individuals own their home. And paying off the mortgage is something we’re good at. Even in truly hard times – the last recession back in 1990-91 that followed sky-high interest rates – relatively few of us lost our homes. We tend to be smart about building up equity in our home to provide a buffer for emergencies, and we make all manner of other economies to keep our home.
4IT’S A TAX DODGE It’s not just negatively geared investors who do well out of the way our tax system treats housing. Unlike just about everything else you can do with your money, the family home is exempt from capital gains tax (CGT). Treasury estimates the family home exemption and the CGT discount together cost the government $61.5 billion in foregone revenue in the 2016-17 year. This exemption is one of the Australian government’s most sacred cows. Even if a political party was brave
5“THISgrowing nation desirable homes” FOR enough to risk the wrath of the electorate – remember that most of us, more than 60 per cent, either own or are paying off our home – odds are any change would be “grandfathered” and not apply to existing homes.
BUILDING A HOME IS AN EXPRESSION
OF YOURSELF Other than having children, it’s most people’s biggest project. Buying an existing property means living with others’ mistakes and desires. Renovations tend to end up being compromises or so total you may as well start again. Starting from scratch means you can make your own mistakes instead – but hopefully not. It should mean the satisfaction of creativity, of building your own dream. I suppose Dennis Denuto, the lawyer character in the movie The Castle, would say, “It’s the vibe”.