Leverage, and the house vs shares decision

Over the thirty years to 2026, Australian house values grew at roughly 5.6% to 6.4% a year, and the ASX 200 returned roughly 9% to 10% a year including dividends (a cash payment from a company you own part of). On those numbers shares win comfortably, and it is not close.

Yet most Australian wealth is in housing, and plenty of people have genuinely done better out of one house than out of a share portfolio. The number that explains the gap is not the return. It is the loan.

What leverage actually does

Leverage (using borrowed money to invest bigger) multiplies whatever the asset does, up and down, against the money you actually put in.

Put $150,000 into shares and a 6% year makes you $9,000. Put the same $150,000 down on a $600,000 house and a 6% year makes you $36,000, because the growth applies to the whole $600,000 and not just your share of it. That is a 24% return on your own money from a 6% asset. This is the entire reason property looks the way it does in Australian household wealth.

Three things make that comparison less flattering than it first appears, and all three are routinely left out.

1. The borrowed money is not free. At an average owner-occupier variable rate of 6.90% (Finder, September 2026), a $450,000 loan costs about $31,050 in interest in the first year alone. That $36,000 of growth is now $5,000 of growth.
2. Leverage works identically in reverse. A 10% fall on $600,000 is $60,000. Against $150,000 of your own money that is a 40% loss, and the loan does not shrink to keep you company. Fall far enough and you owe more than the place is worth while still making full repayments.
3. Property has running costs shares do not. Council rates, insurance, strata, maintenance and eventually a new hot water system. Budget roughly 1% of the property's value a year and you will not be far wrong.

So the honest version is this: leverage converts a modest asset into a powerful one, and it does so by borrowing at a rate that eats most of the difference. Whether it is worth it depends almost entirely on whether the growth rate beats the borrowing rate, and right now those two numbers are uncomfortably close together.

Amina's decision point

Amina is 40. She has been investing $12,000 a year at 10% for ten years, which is the same trajectory the compounding lesson ran the numbers on, and her portfolio has grown to $210,374. She is married with a child, and the question that has been circling for two years is whether to keep doing this or buy a house.

The national median dwelling value was $912,885 at the end of August 2026 (Cotality Home Value Index), well beyond what her income supports. What is realistic for her is something around $600,000: an outer-suburb house or a larger unit. She would put in $150,000 as deposit and purchase costs, keeping the rest invested, and borrow $450,000 over 30 years at 6.90%.

Here is the first number, and it is the one that decides most of these arguments before any projection is run.

This is worth sitting with, because it is the actual Australian housing situation and no amount of projection maths gets around it. A median-priced home is out of reach on a single $80,000 income, and even a well-below-median one consumes more than half of it.

Running both paths properly

The comparison people usually run is rigged, because it forgets that the renter pays rent. Done properly, both paths have to spend the same money.

• Buy: $150,000 deposit and costs, $35,564 a year in repayments plus about $5,000 in rates, insurance and maintenance. Total outlay $40,564 a year. Nothing left to invest.
• Keep investing: keeps the full $210,374 invested, pays about $28,600 a year in rent, and invests the $11,964 difference. That is almost exactly the $12,000 a year she already contributes, which is what makes this a fair fight rather than a stacked one.

Twenty years on, with property growing at its long-run 5.6% and shares at 10%:

Read that table carefully, because it does not say what people expect. At the long-run average growth rate, keeping the money invested wins by more than $640,000. At 7% the gap narrows to about $100,000, which is inside the margin of error on any twenty-year assumption. At 8% buying wins clearly. The entire answer swings on a number nobody can know in advance.

The reason is the one from the top of the lesson. Borrowing at 6.90% to own an asset growing at 5.6% is a losing trade on the growth alone. The loan costs more than the thing appreciates. Ownership claws that back through the rent you stop paying and the principal you are forced to repay, and those are real, but at today's rates they are clawing back from behind rather than adding to a lead.

What she decided, and why

Amina deferred. Not forever, and not on principle. On two specific grounds.

The first is the spread. At 6.90% borrowing against 5.6% long-run growth, the leverage is working against her rather than for her, and she could not construct a version of the numbers where buying clearly won without assuming property growth she had no basis to assume.

The second is the one from the previous lesson, applied to herself honestly. A $40,564 annual outlay ends her investing completely. She has ten years of evidence that she is someone who keeps contributing, so the forced-saving argument for a mortgage, which is the strongest argument in its favour, is worth less to her than it is to most people. She already has the habit. She would be paying a large premium to have it enforced.

The things the table cannot hold

Spreadsheets compare what is measurable, which quietly biases them toward the measurable. The real reasons people buy homes mostly are not in the table: not being asked to leave, being able to paint a wall, staying in one school zone, being near family, having somewhere to put down roots. Those are not soft or irrational. They are the actual product.

Two genuine financial advantages also sit outside the growth comparison. Owning removes your largest lifetime expense at exactly the point your income stops, which is the retirement income problem from the last lesson solved from the cost side. And the forced-saving mechanism converts income into an asset for people who would otherwise have spent it, which is most people.

Buy a home because you want to live in it and can comfortably afford it. If you also need it to be the best possible investment to justify the decision, check the spread between what you would pay to borrow and what you expect the asset to do, and be honest when that spread is negative.