Australian Dream of Home Ownership Fades

Is the idea of owning a home a fraud? By that, we mean - does homeownership deserve special status in any society? Isn’t it just a financial decision, more sensible when you’re older and can afford a mortgage, and a lot less sensible when you’re just starting out?

“Few things are more fundamental to Australian society than home ownership,” intones the Age. “To own your own a home is a badge of full membership in Australian society. Yet for many younger Australians, soaring house prices have pushed home ownership out of reach. Housing affordability, as measured by the Commonwealth Bank and the Housing Industry Association, has plunged 40 per cent since 1996. In this long boom of wealth and plenty, for the first time the average Australian household can no longer afford to buy the average Australian home.”

Many things are out of reach when you’re younger, including door handles, the cookie jar and your mum’s expensive flatware. But that isn’t social injustice. It’s just life. What we’re wondering today is what the fuss is all about. If owning a home means taking on a lifetime of debt and struggling just to make the mortgage payment each month, it’s a lousy goal with lousy financial consequences.

Granted, a roof over your head provides security, physically and maybe psychologically. But that’s a slender reed to lean on if you don’t really own your home. We are living in a less secure world than our parents, economically, physically, and financially. Adapting to that is a better strategy than pining for a bygone era.

How do you adapt? Well as one reader pointed out, taking on debt is actually a sensible financial strategy in an inflationary period. For one, the real value of the debt is inflated away along with the currency. The key is what you can trade the money for before it loses value. Not that we are encouraging readers to borrow on their credit card in order to buy a gold mine. Not at all.

As a general strategy - aside from avoiding debt altogether - trading cash for a share of tangible assets that produce income is a better strategy than, say, investing in high-yield property schemes. Luckily, Australia is a good place to find tangible assets. And unfortunately for many investors, it’s also a place to lose money in property schemes. The schemes will come and go. The resource boom is a little more durable.

Which do you prefer, the Aussie juniors or the Canadian juniors, in mining stocks that is? We are headed to Las Vegas, Denver, Baltimore, and Vancouver in the next three weeks. In Vegas and Vancouver, we’ll be speaking to resource investors who, thus far, have preferred participating in the resource bull market through Canadian-listed stocks.
Do Canadian juniors have any inherent advantage over Aussie juniors? Well, they are close to large sums of capital and a more liquid market, both in terms of capital and information. But they wouldn’t seem to have any better claim on superior deposits. We’ll let you know what we find out.

Dan Denning
The Daily Reckoning Australia

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