The "Australian Dream" often revolves around owning a house. However, with real estate prices soaring and an increasing cost of living, saving a deposit feels like chasing a moving target.
So, somehow, buying a house has become the Aussie escape pod, the only path to long-term financial security.
This hasn't sat well with me for some time, so I've decided to put some numbers on the table to see if there are any other options.
Suppose You're in the Market
Suppose you're in the market for a house you can afford. Not your dream house, but a start. Let's say:
| Item | Amount |
|---|---|
| House Price | $1,000,000 |
| Available Deposit | $200,000 |
| Loan Amount (including LMI) | $816,000 |
| Lenders Mortgage Insurance | $16,000 |
| Mortgage Interest Rate | 5.5% |
| Mortgage Term | 30 years |
| Weekly Mortgage Payment | $1,311 |
| Interest Component (Average) | $673/week |
| Principal Component (Average) | $638/week |
Projected House Equity Growth Over Time
The classic Aussie wealth generator. The family household. Our parents' wealth typically comes from their house. The family house has been the rock of stability and symbol of prosperity.
If you buy a house, you're likely going to see the equity tied up in that house grow over time like this:
Looks good, right? Your wealth growing over time through house equity following the traditional approach to building wealth.
But What's Actually Involved?
Owning a house typically means a loan from the bank, which you pay back over time. Your mortgage payment is made up of:
- Principal: Giving back the original amount of money the bank gave you
- Interest: A fee to the bank on top of the money you borrowed
Understanding how your mortgage payments are allocated between interest and principal over time can provide insights into how much of your money is building equity versus paying interest to the bank.
Here's the uncomfortable truth: on average over a 15-year period, you might pay around $35,000 per year in interest. This amount is a pure expense, similar to paying rent.
You're not building equity with that $35k. You're paying the bank for the privilege of borrowing money.
Australian Housing Growth
To be fair, Australian property has historically shown solid growth. Looking at ABS data on residential dwelling values from their Total Value of Dwellings Report, the average annual growth rates vary by state:
| State/Territory | Average Annual Growth (%) |
|---|---|
| NSW | 6.87% |
| TAS | 6.57% |
| QLD | 6.04% |
| SA | 5.96% |
| VIC | 4.72% |
| ACT | 4.45% |
| WA | 3.71% |
| NT | 1.17% |
These numbers support the conventional wisdom. Property does grow. The question is: is it the only option?
An Alternative: Bitcoin
Given the challenges of affording a house, let's look at the numbers for investing in Bitcoin as an alternative.
I wanted to make this as much of an apples-to-apples comparison as I could. That's proven hard, and it's going to be controversial no matter what values I use.
Here's the strategy:
- Instead of using your deposit to buy a house, invest it in Bitcoin upfront ($200,000)
- The funds that would have gone towards the principal portion of your mortgage payment and homeowner expenses are also invested in Bitcoin annually (starting at ~$38,000/year)
- You use the equivalent of the interest portion of your mortgage payment to pay rent instead, adjusted up each year for inflation (starting at ~$35,000/year)
Why this approach?
Rent is typically proportional to the cost of houses in the suburb you want to live in. Not perfectly, but it's a good starting point. If the issue is accumulating wealth (which this is about), paying too much rent isn't going to help.
The Elephant in the Room
How much will Bitcoin's value rise?
Bitcoin has had a fluctuating but generally upward-trending history. While past performance doesn't guarantee future results, let's use a decreasing growth rate to simulate a more realistic future scenario.
For argument's sake, I want to completely divorce Bitcoin from any other form of "crypto." The reasons for that can be heard and argued in language far better than I can deliver in Broken Money by Lyn Alden or The Bitcoin Standard by Saifedean Ammous.
I don't think the past growth rates can continue as Bitcoin adoption matures and it becomes more common. At the time of writing, the price of Bitcoin has risen 104% in the last 12 months. The historical quarterly Bitcoin growth rate is just over 25%.
To keep things conservative, I've used a starting annual growth rate of 25%, declining linearly to 5% over 15 years. This gives us a final Bitcoin market cap of around $18 trillion AUD.
For reference:
- Market cap of Gold: ~$30 trillion AUD
- Australian Residential Property Market: ~$11 trillion AUD
- Current BTC market cap: ~$3 trillion AUD
I've gone with a flexible assumption that all 21 million BTC are already available (they're not), with none of them being lost (which they have), so there's some padding in there for argument's sake.
Bitcoin Investment vs. Rent Over Time
So instead of a mortgage, you rent. You spend the amount you're paying on mortgage interest on rent, and the amount you're spending on principal (the money you would be "saving") plus homeowner expenses on Bitcoin. Both rent and expenses are adjusted for inflation.
So even while paying rent, using a decreasing Bitcoin annual growth rate, we're looking at a significant increase in equity. But of course, it's not that simple.
Cumulative Investment vs. Equity/Value
Comparing how much you've invested over time against the adjusted equity or value of your investments helps you understand the efficiency and effectiveness of each strategy.
This chart compares the total amount invested over time against the raw equity from house ownership and the raw value of BTC investments. It provides a clear comparison of how much you've invested versus how much each investment has grown without considering inflation or taxes.
Adjusted for Inflation and Taxes
This chart compares the inflation and tax-adjusted equity from house ownership against the inflation and tax-adjusted value of BTC investments. It provides insight into the real value of your investments by accounting for the diminishing purchasing power of money and tax implications.
Net Gain Over Time
Net gain represents the adjusted equity or value minus the cumulative investment. It effectively shows your profit after accounting for all the money you've invested.
This chart illustrates the actual profit you've made from each investment after accounting for all your contributions. It provides a clear picture of which investment is yielding higher returns over time.
The Numbers After 15 Years
| Category | House Purchase | Bitcoin Investment |
|---|---|---|
| Initial Investment | $200,000 | $200,000 |
| Total Invested (15 years) | ~$700,000 | ~$800,000 |
| Total "Dead" Costs (15 years) | ~$450,000 (interest) | ~$600,000 (rent) |
| Final Value (Raw) | ~$1,900,000 | ~$3,500,000 |
| After Tax | $1,900,000 (exempt) | ~$2,300,000 |
| Inflation-Adjusted Value | ~$1,050,000 | ~$1,250,000 |
| Net Gain (Real Value) | +$350,000 | +$450,000 |
Effect of Capital Gains Tax on Bitcoin
Understanding how capital gains tax (CGT) impacts your Bitcoin investment is crucial. You only pay the CGT if you sell. If you decide not to sell and continue investing, your wealth may continue to grow.
This chart highlights the importance of considering taxes when evaluating investment returns. While the raw Bitcoin value might look impressive, the actual amount after taxes is what you would receive if you sold your investment. At a 20% CGT rate on gains, this makes a significant difference.
House Price in Bitcoin
Here's another way to think about it: over 15 years with these assumptions, that $1,000,000 house measured in Bitcoin terms:
If Bitcoin appreciates faster than the house price, the number of Bitcoins needed to buy the house decreases, enhancing your purchasing power relative to the housing market. In this scenario:
- Year 1: ~11 Bitcoin needed to buy the house
- Year 15: ~3 Bitcoin needed to buy the house
But It's Not That Simple
Of course it isn't. There are important considerations:
- Volatility: Bitcoin is volatile. House prices are relatively stable.
- Capital Gains Tax: You'll pay CGT when you sell Bitcoin (around 20% on gains). Houses get a CGT exemption if it's your primary residence.
- Inflation: Both investments are affected by inflation, and I've adjusted for it in the comparison.
- Emotional factors: Owning a house provides stability and security that renting doesn't.
- Market timing: When you buy matters for both assets.
- Regulatory risk: Bitcoin regulations could change.
- Security risk: You need to properly secure your Bitcoin holdings.
The Real Question
The point isn't "Bitcoin good, house bad." The point is: do you really need to rush into the housing market right now?
If you're stretching yourself thin to afford a deposit, if you're compromising on location or quality, if you're taking on massive debt - maybe there's another path.
You can start buying Bitcoin today and transfer it into a house when it better suits your needs. You're not locked out of wealth building just because you're not in the property market right now.
The Conclusion
By investing in Bitcoin, you could potentially have ~$1,250,000 in adjusted value after 15 years, compared to ~$1,050,000 in house equity (both inflation and tax adjusted).
Investing in Bitcoin might be a viable alternative to purchasing a house, especially if housing affordability is a concern in the short term. The numbers suggest it could provide higher returns, even accounting for rent, taxes, and inflation.
But - and this is important - this analysis is based on projections and assumptions that may not hold true in reality. Investment decisions should be made after consulting with a qualified financial advisor who understands Bitcoin properly.
Bitcoin is volatile. Long-term growth trends have been positive, but past performance is not indicative of future results.
The "Australian Dream" of homeownership isn't wrong. But it might not be the only dream worth pursuing. And it might not be worth sacrificing everything else to achieve it right now.
Keep your head up, Australia.
Note: Want to run your own numbers with your own assumptions? Check out the interactive calculator at github.com/bfgdigital/house_vs_btc