Everyone knows that Australians build the largest new houses in the world. According to the Deputy Governor of the Reserve Bank, real expenditure on each new dwelling is now 60% higher than it was 15 years ago.
Just why we need 85 m2 per person, on average, in our new suburban houses is an interesting question, especially given that the average household size in Australia has fallen.
As with most things, it’s the coincidence of a number of factors that provide the most plausible explanation, but in my view the key reason is that Australians increasingly see the purchase of a dwelling as an investment decision.
There was a time when buying a house was solely about consumption – i.e. shelter – but now it’s received wisdom that houses inexorably increase in price. They provide growing equity to borrow against in the future and capital to draw against if the unthinkable should happen.
Recent history has convinced home buyers that residential property is a good, even spectacular, investment. This reflects factors such as its tax-sheltered status, restrictions on supply, low interest rates and Federal and State home buyer assistance schemes.
From the perspective of many home buyers, a bigger house not only provides more consumption value but is seen as a sound long-term investment decision. Unlike a car, which depreciates in value, buyers assume every dollar spent on a house ultimately increases in value. A bigger house might even appreciate in value faster than a smaller house. Read the rest of this entry »