I recently came across an article published by one of Australia’s largest home loan brokers, drawing a comparison of average house price growth in Australia over 25 years, versus the All Ordinaries index (a proxy for the Australian share market). The article claims that average house prices have increased by 412% over 25 years, implying that if you bought the average Aussie home 25 years ago for $100k, it would now be worth $412k (a point I’ll not argue with). The Australian All Ordinaries Price Index achieved a ‘substantially lower 261%, implying that if the average Aussie invested into the Australian share market 25 years ago the original investment would be worth $261k today. On these measures, the article alludes that residential house performance has outstripped the performance of Australian businesses over 25 years.
It’s my view that the report draws a conclusion that falls short of a true comparison.
My initial gripe with the article is the inherent difficulties that exist when calculating ‘true’ returns associated with residential housing. Over 25 years I’d be fairly confident that the majority of home owners invested capital via both major and minor home improvements, alongside countless unpaid hours around the house. Add rates, insurances, and broken plumbing (I’m being hard now) and I’m sure that the 412% over 25 years touted above would come crashing down. The important fact here is the report (and the 412%) does not account for the very real expenses associated with property ownership. In addition to this, the returns used to draw the comparison is the All Ordinaries Price Index, I’d personally like to see a fair comparison, which would invariably include the All Ordinaries Accumulation Index, which takes into account the dividends and distributions, a true reflection of returns achieve by individuals investing into the Australian share market.
When we observe the Accumulation Index returns over the same 25 year period we see a stark difference, a substantially higher 819% total return, versus 412% available from residential property. That’s $819,000 versus $412,000 on your original $100,000. Now, I’m not trying to criticise property ownership, as I believe anyone who wants to own a property in Australia should have the chance to. But rather than reading another article trumping the performance of property, it would be refreshing (in my opinion) to read how policy makers and industry advocates are supporting affordable property ownership for all Australians, but I doubt that would spark as much interest.
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Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)