Why You Need to Own a House

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The percentage of households who own their own home has dropped to the lowest level since 1951 according to figures released this year by the Department of Statistics. At the peak of home ownership in 1991 around 73.5 percent of households owned their own home; now that number is less than 65 percent. What we are seeing is increasing concentration of property ownership in the hands of a smaller number of people who own multiple properties.

Renters make the argument that being a tenant makes good economic sense. Rent is initially less than the cost of mortgage repayments. The landlord takes care of rates, house insurance and repair bills. Renting is more flexible – you can change location without incurring the huge costs of selling a property. It is hard to argue with these points if you take a short term perspective on the issue of renting versus owning.

Now let’s take a long term view. Over the long term, we know property prices increase, and along with that, rents go up. On the other hand, the amount of money borrowed to purchase a house either stays the same in nominal terms or reduces if the principal is repaid. The effect of inflation is to reduce the real value of the mortgage and the principal repayments over time. If house prices rise at higher percentage than the rate of interest on the mortgage, this effect is amplified. The sooner you buy a house, the more wealth you will create. Living in rental accommodation in retirement is not desirable. Rents increase over time and landlords cannot be relied upon to provide long term tenancies. Owning a debt free home leads to a much more comfortable retirement. The sooner you buy, the cheaper it will be and the more wealth you will create.

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