Friday, May 29, 2009
Long-Term Returns in the Housing Market
This article from the Wall Street Journal seems pretty solid. Let me know if you can see any flaws. The bottom line is that you shouldn't pay any more to own than to rent a house (principal + interest) because the real capital gains about match the other costs including maintenance and property taxes. Of course, that ignores any utility you get from owning rather than renting...
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2 comments:
Returns (capital gains and rents) depend a lot on location - Australian metropolitan real estate produces lower rent returns and higher capital gains on average than rural towns. So it's hard to generalise.
Anyhow, the quoted figure of 2%pa in taxes, maintenace etc. seems quite high. For example, our investment property is currently worth around $700,000. The annual land tax is around $1,400pa, council rate around $1,000, insurance about $600 and our maintenance cost has averaged less than $2,000pa. So the total maintenance and tax cost is only 0.7%pa.
Due to population growth and limitations on land supply (either geographic or by government restriction) you tend to get reasonable real rates of capital gains on residential metropolitan real estate in Australia.
Property taxes can be much much higher in some parts of the US. In my old location of Troy NY property tax averaged 4% or so! Of course there were no $700,000 within the city limits, partly as a result - it's mutually causative. But in Texas property taxes are about 2% statewide. In CA it's 1.25% though the full rate only applies when you buy the property and rises at a fixed rate not according to the change in property value due to proposition 13.
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