Forget the RBA, I’m calling it for the buyers

When an undisputed champion offers to adjudicate on a cage fight, respect says you stand back, listen to the verdict, and graciously accept victory or defeat.

If Elvis rolled up to judge your local “battle of the bands”, would you dare question his decision?

So, last week was, like, a TOTAL let-down. The Reserve Bank of Australia, the 500-pound gorilla of economic debate in Australia, weighed in to the age-old argument on whether it’s better to buy or to rent.

And it’s verdict: “Um, depends. Maybe renting. But maybe buying? Not sure. Hey guys, what does everyone think is going to happen to house prices?”

You’ve got … to be … kidding me! That’s not a score settler!

Mankind has been waiting since Adam first raised his hand at auction to bid for a cave for a knockout blow in this argument. Buyers and renters argue vehemently and endlessly. They’ll never agree to disagree.

This was our big hope: “RBA declares winner in owning/renting debate”. Nope, didn’t happen.

So that means warfare will break out again. More blood will be shed. Ryan “Mulder” Fox and Peter “Mania” Tulip, the two propeller-hat wearing RBA nerds who wrote the report but failed to declare a victor, have only themselves to blame.

If the ceasefire is over, I’m going to throw the first stone. At “Mulder and Mania” and their report.

First up: Declare my bias.

I’ve been a card-carrying, one-eyed nut in the “buy” camp for a very long time now. I’ve written five books on property ownership (the sixth is coming) and countless columns on the topic. I’ve publicly debated the topic, including against Australia’s most famous property bear, Professor Steve Keen, from the University of Western Sydney.

And I’ve read a billion comparisons of the various benefits and disadvantages of buying versus renting.

And they all miss one thing. Unfortunately, with all the complex formulas and justifying for a per cent here or a per cent there, they inevitably seem to overlook the most powerful argument of all, in my opinion, in favour of buying over renting.

I’ve got a catchy ditty that sums it up so that you can remember it.

“If you choose not to buy, you will rent until you die.”

There, simple.

If you buy, you will one day own your own home. The loan will, eventually, be repaid. You will own a large asset. Even though you will probably take out a loan for 25 or 30 years at the start, you will probably be mortgage-free in under 15 years, and almost certainly in less than 20. Thanks to rising incomes, plus offset and redraw accounts.

If you bought at 30, then at age 50, all you’ve got to pay is rates and maintenance.

The lifetable stats suggest today’s 30-year-olds will live to 90. That’s 40 years with minimal housing costs after taking back the title from the bank.

Mulder and Mania allude to this in their report. They say that if a historically low property growth figure were used (1.7 per cent real growth, ie, above inflation), buyers would be ahead from about year 30. However, if the 60-year average of 2.4 per cent was used, buyers would be ahead by about year 15.

But in giving a small “points” decision (“the average household is probably financially better off renting than buying” based on the 1.7 per cent figure) to renters, they have based this on the home buyer selling his house after 10 years.

Say … what! After owning their home for 10 years, the buyer sells and goes back to renting for the rest of their life? Are they kidding?

How many people do that? Seriously!

Let me bang this home one more time.

At the 30-year mark when the mortgage is history – assuming they only make the bare minimum repayments for the entire term – buyers will be wa-a-ay ahead, from that point on, because the renter still has 40-years of ever-increasing rents ahead of them.

Buying is a decision that rewards you the longer you do it. Selling after 10 years … to rent? I think the RBA was trying to get fence splinters in their collective bum.

I think buyers can now claim victory.

Bruce Brammall is the principal adviser with Castellan Financial Consulting (www.castellanfinancial.com.au). E: bruce@castellanfinancial.com.au.