I’ve discussed this problem with slum dwellers in Thailand, India and Peru and it is true that a house can make you happy. A decent roof stops you getting cold when it rains. Furniture is great because it avoids the problem of contamination that occurs when you eat rice with your hands off a dirt floor. To go from no house to basic house is an increase in happiness.
From that point on, the law of diminishing returns comes in…if you account for the work involved. So if you get a house twice as expensive as a basic house, it won’t make you twice as happy. If you work twice as long to pay for it, you’ll probably be less happy. Actually, the way compound interest works, doubling the size of the loan more than doubles the cost of paying it off. A $100,000 loan at 4% interest paid over 15 years costs $133,000. A $200 000 loan at 4% interest over 30 years costs $344,000.
Speaking of money, the function of a house is no longer to stop people sleeping in the rain. Property is treated as an investment like any other – shares, commodities, etc. This practice unlinks wages from house prices. In Australia, the gap between what people earn and what they pay for a house is more disparate than just about anywhere in the world.
State government controls most of the planning laws and are unlikely to introduce any revolutionary measures that would result in the value of property falling. However, they have made it easy to build secondary dwellings – a second house of limited size on the one block. Council is mostly controlled by state laws, but has some degree of autonomy. The current Greens led council is looking at what it can do for affordability.
What can you do?
- Build only what you can afford. It may be humble – so what? Get a small loan and pay it off quickly.
- During the design phase, the left side of the brain will make calculated, sensible input. The right side, the emotional side, will drive the design with all sorts of unrealistic “I want”s. This is the same area of the brain that spontaneously buys a new car because the TV ad implied it would make you “free”, be admired by attractive women or go on an adventure. Ignore this part of the brain, it will plunge you into miserable debt.
- Build what suits you, not what you think the next people to buy the house want. Ignore any real estate agent who tells you that only nuclear families with young kids ever buy houses. They are actually a minority market.
- If you ever build for “resale value”, then you’re investing, not housing. Calculate the extra cost of the investment, including extra interest on a larger loan against the projected resale increase (which is impossible because future investor sentiment can’t be predicted). Proper accounting will probably dissuade you from “resale value” building.
- If you can’t afford to lead a materialistic, individualistic life, then don’t. Sharing resources is cheaper. Get together a group and build your own clustered, community housing. This has been done for years in the valley on rural blocks. The concept can be applied at any scale, and there are many successful urban examples around the world. Using structures like trusts and community title, you should be able to get a bank loan. If you can’t, approach ethical investment agencies.
- The secondary dwelling and dual occupancy legislation is increasingly being used to allow several generations to live on the one land title, as people have done for thousands of years until last century. The 20th century coincided with a one off blip in human history of extraordinary resource extraction and wealth to select parts of the world. It’s an unsustainable situation that shouldn’t be used as a base line assumption of how we can live in future.
- (Article written in the Bellingen Courier Sun).