Pursuant to the recent claim made by outspoken property developer Tim Gurner that more first-home buyers will be able to afford a deposit sooner if only they stopped purchasing expensive smashed avocado on toast and coffee on a daily basis, Countinghouse thought we’d look into the statistics behind this claim to see if they hold veracity.
To give Mr. Gurner’s claim the full respect it quite obviously merits, we left no stone unturned in the quest to see just how much impact a slight change in spending has on getting that vital deposit for one’s first home. Table One (below) shows a breakdown of replacing frivolous and hedonistic café coffee and toast with sensible and cost-effective home-versions, and it seems Mr. Gurner’s claim has hit a slight (twenty-two year sized) bump in the road. Factoring in statistics like the current Australian median house price and the average 2.5% per-annum house price inflation; saving a twenty-percent deposit in order to purchase said average-priced home would be twenty-two years’ worth of home-style toast and coffee. Seventeen if the average house price does not inflate at all: This is certainly fewer than twenty years, and perhaps the catalyst of Mr. Gurner’s excitement.
Table One: Twenty-two years isn’t that long if you think in epochs.
Countinghouse were committed to exploring the bedrock of Mr. Gurner’s claim, as seen in Table Two (below), we addressed food inflation price in Australia, Australian house price inflation, and of course putting the money saved through frugal home-toast methodology into a savings account yielding 2% interest with tax factored at 40%. Astute readers will notice the years required have unfortunately crept back up to twenty-two, due of course to Countinghouse erring on the side of reality.
Table Two: Countinghouse is nothing if not thorough.
There’s a slight catch in Mr. Gurner’s coffee-and-toast-epiphany, however. Twenty-two years of saving up for a deposit might render a mortgage unattainable due to the effects of inflation, and an imposed twenty-two year abstinence from smashed avocado seems like cruel and unusual punishment to gourmands and trend-surfers alike. There is a way to make these savings do more, however, even if one accrued savings in a diverse and creative manner not focused entirely on home-versions of café fare. Figure One and Table Three (below) shows what happens when you place those savings in a high-return, active investment like Countinghouse. Six years does seem more palatable, though if Mr. Gurner had active investments in mind, he was being very implicit in his communication of that crucial detail.
Figure One: Six years is less than twenty-two.
Table Three: For those who don’t enjoy pictorial representations of data.
Not content to leave our thought experiment there, however, Countinghouse explored what would happen if one continued to willingly substitute delectable café-forged coffee and smashed avocado for decidedly less trendy home-substitutes for even longer in a frankly masochistic commitment to saving money. Figure Two and Table Four (below) show us that continuing to invest those savings annually into an active investment like Countinghouse will render one’s mortgage paid off in under nine years.
Figure Two: Showing the effects of re-investing savings into active investment after purchase of home.
Table Four: Good things come to those who can’t abide cafés, and to those who re-invest into active investments like Countinghouse.
Was Mr. Gurner using smashed avocadoes on toast and café-style coffee as an analogy for active investments? If so, he’s completely on the money.
Sources:
-https://www.rba.gov.au/publications/bulletin/2015/sep/pdf/bu-0915-3.pdf