For 50 years, the Australian dream has meant the same thing: buy a house, watch the price go up, and eventually retire comfortable. That dream has generated an extraordinary amount of wealth for the people who got in early. But is it still achievable for most Australians today? No.
Housing affordability in this country has never been worse, and the schemes being rolled out to "fix" it are, in my view, doing the opposite.
The Triple Whammy Hitting Australian Buyers
On average, it now takes buyers 11 years to save for a deposit. In Sydney, the average home costs almost 14 times annual disposable income, making it the world's second most expensive city to buy property, behind only Hong Kong.
If you haven't been able to get a foot on the property ladder, you've effectively been hit with three things at once.
- Rising prices. For people who already own, that's a good thing. For people trying to buy, it means watching prices creep further out of reach.
- Rising interest rates. Bigger loan balances at higher rates mean ballooning repayments, and the amount the bank will lend you shrinks as rates rise, so you can afford less and less of the house you actually want.
- Rising taxes. The government keeps finding new ways to take its cut, whether that's land tax in Victoria, a proposed view tax in Queensland, the removal of negative gearing, or increases to capital gains tax. All of it adds to the cost of buying and makes housing less affordable.
Why the "Help to Buy" Schemes Are a Trap
The government has responded to all this with 5 percent deposit schemes for new buyers, 2 percent deposit schemes for single mothers, and now a 40-year interest-only mortgage product from AMP. On the surface, these sound generous. In practice, I think they're a trap.
Take the 5 percent deposit scheme. It was introduced at the top of the market this year, not the bottom of the market 40 years ago and not even midway through the last bull run. Someone who saved $37,500 and put it down as a 5 percent deposit on a $750,000 home has effectively taken on 20x leverage on an overpriced asset. With Sydney house prices down around 10 percent over the past three months, that $750,000 home has dropped by $75,000. A 10 percent fall doesn't cost you 10 percent of your deposit, it wipes out your entire deposit and then some, leaving you in negative equity, owing the bank more than the home is worth.
The 40-year mortgage tells a similar story. On a $600,000 loan at 6.5 percent, a standard 30-year term costs about $3,800 a month with roughly $764,000 in total interest paid. Stretch that same loan to 40 years and the monthly repayment drops to about $3,450, saving you around $350 a month. But total interest paid jumps to over $1,050,000, more than $300,000 extra. You save a little each month, and the bank makes an extra $300,000 out of you over the life of the loan.
Why Property Isn't the Trade for the Next Decade
This comes down to how money moves through an economy when it's printed, and specifically which asset prices get inflated first. It's known as the Cantillon effect. Money flows into stocks and real estate first, and only afterwards into commodities. We saw it in the 1720s when Cantillon first wrote about it, in the 1920s during the Weimar hyperinflation, and again in the 1970s when commodity prices exploded alongside inflation.
Bring that forward to today. All the money printing since 2008 has flowed into stocks and real estate first. Now we're starting to see inflation kick in properly, and commodities are beginning to take off. That's why I don't think property is going to be the place to be for the next 5 to 10 years, and why I think commodities, particularly silver, will be.
My Strategy: Rent-Vesting Into Bullion
The strategy I'm running personally is rent-vesting, though not in the way the term is usually used in Australia. Most people take it to mean renting where you live and buying investment properties elsewhere. For me it means renting the property I live in and putting my money into the assets I actually want to own: 65 percent silver, 30 percent platinum, and 5 percent gold.
We expect silver to hit $300 an ounce within the next three years, and by the end of this bull market to hold around $1,000 US dollars worth of purchasing power per ounce. Those are big numbers, and they mean the people positioned in these metals now stand to build real wealth, wealth you're more than welcome to eventually put toward a house.
I do want to stress that gold, silver, and platinum won't be the place to be forever. I'm not saying property can never run again. I'm saying it's unlikely to run hard over the next 5 to 10 years given where we are in this cycle.
One pushback I get regularly from property investors is that bullion doesn't offer leverage the way property does. That's true, but leverage cuts both ways. A property investor who puts 20 percent down and sees the property rise 20 percent hasn't made 20 percent, they've doubled their money. But a highly leveraged investor in a falling market can go bankrupt, and rising interest rates keep chewing into the cash flow needed just to hold the position.
This is not financial advice. This is insight into what I do with my own money, not a recommendation for what you should do with yours.
So the real question is whether you want to go out and buy overpriced Australian real estate with as much leverage as you can get, or back the fastest horse in the race: gold, silver, and platinum.
What a time to be alive.
Sam from Liberty Bullion.
