The Aussie dream of owning property is fast becoming a thing of the past.

Q: With housing prices starting to move up as well as interest rates set to rise again, it's now almost impossible for us to buy a house. Saving for a deposit is getting beyond our reach. How can we at least get to first base and manage to build up enough savings for a deposit?
Susan, Northcote, V.

A: Susan, please read on for my financial argument on why
it's a good idea to continue renting rather than buy your own home.

Rent vs own
Even though some property markets will go through boom periods, over the long term, residential property hasn't performed as well as shares in our major companies. Then there are the high costs of purchasing property, such as stamp duty, legal costs and land tax. While owner-occupied property is capital gains tax free, the interest payments aren't tax deductible as they are on investment property.

Forced savings
For a lot of Australians, owning a house with a mortgage becomes a forced-savings program. We meet our repayments and work hard to pay it off early, thus increasing our home's equity and building an investment. It's not the best way to build an investment asset, but we seem happier to do this than build an investment portfolio elsewhere.

Building wealth
A university study a few of years ago concluded that, given the high costs involved in buying residential investment property, it's only after 17 years of continuous ownership that a home buyer financially ends up in front of a person who rents!

So the better option is to continue to rent, and to invest the difference between your rent and a mortgage on an equivalent property elsewhere - most renters spend the difference. The first step is to work out that difference. The second is to arrange for that amount to be automatically transferred from your bank account to a high-interest account.

When the balance in the account is big enough, transfer it to a growth-oriented investment such as a managed fund or shares. You'll need to sit down with a financial planner and work out where the money will go. They will advise on the fund managers or stocks to follow and make sure the portfolio is diversified enough to provide good, consistent returns. Once you've built up a portfolio, you can decide to keep renting and investing the difference, or use the money to buy a home.

The final decision
A lot of your decision will depend on your renting experience. If you're in a nice place with a good landlord, then there's a sense of security. But if you've had narky landlords or have had to move a lot, then buying your own house will seem like a godsend.

Buying your own home is more
of a lifestyle and peace-of-mind decision than a financial one. It's also good for those who find it hard to invest because they can achieve that by building up their equity.

Financial housekeeping
Apart from investing the difference between your rent and anticipated mortgage, you'll reach your deposit level a lot quicker if you overhaul.

the way you manage your finances as a whole.

• Do a budget and work out ways to cut down incidental expenses so you can save more. Taking your own lunch to work can save $5 to $10 a day, which is $50 a week or a little more than $2500 a year.
  

• Be savvy with your tax. Split your income by putting surplus money into an interest-bearing account in joint names or the name of a non-working spouse.
  

• Make sure you have adequate term-life cover and income protection so that your dependants won't suffer in the event that the unthinkable happens.

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