Buying a car is the biggest purchase you make not a house

17 August 2022

Buying property is the biggest purchase most people will make. The process is given thorough due-diligence. And rightly so. In Australia, depending where exactly you buy, a free-standing house can cost near on one million dollars. You don’t commit to a million dollar obligation without understanding the ins and outs of the undertaking.

Of course a house you paid one million dollars for will end up costing closer to one million four hundred thousand dollars, if you had to fully finance the property, and pay an average interest rate of two and half percent over the course of a thirty year mortgage. Things like maintenance and insurance will also add to the overall cost. But usually that’s ok. Houses are generally assets that appreciate over time, so you’ll recoup the costs when you eventually sell, and, with any luck, make a tidy profit.

But here’s something, buying a house is not the biggest purchase many people will make. Owning a car will be. In Australia, owning a car could end up costing over two million dollars, were a driver to own a succession of vehicles over a sixty year period. How though can a car — even a small vehicle, going for maybe A$25,000 at the dealership — possibly turn out costing two million dollars? Ongoing running costs, which most vehicle owners grossly underestimate, is why.

Berlin based YouTuber TechAltar looked at the long-term costs of car ownership, and made the following conclusions:

  • Car owners typically underestimate car running costs by fifty-two percent
  • Thirty to forty percent of semi skilled and unskilled workers incomes will go into their cars, assuming they own vehicles for at least fifty years
  • Societies subsidise drivers by €5000 each year, so it’s not only car owners who pay

In Germany, a Volkswagen Golf typically costs the owner €7,657 per year to own and run. This includes depreciation, petrol, taxes, maintenance and so on. Based on a conservative study from a few years ago, if you own and use a car of that size over 50 years, it comes to a total cost of €403,179. If we stretch that to 60 years and apply a more realistic inflation rate of 2.5%, that small Golf will incur a lifetime cost of €1,579,583! On a medium income, that’s 30-40% of every euro earned, ever.

To convert those numbers to Australian dollars, a Volkswagen Golf, or an equivalent vehicle, would cost $11,075 each year. Over fifty years the cost is $583,286 (you could buy a modest size apartment for that). Over sixty years of ownership, and applying an inflation rate of 2.5 percent, the cost works out at $2,285,029. $2,285,029: with that sort of money you could buy a house, being, as we all know, an appreciating asset.

While fuel costs, vehicle taxes, and on the road costs might vary between Germany and Australia, I’d say the numbers would be pretty similar. And don’t forget to add in parking and traffic-offence fines. While car ownership is an unavoidable necessity for some people, those with young families among them, remind me again why anyone would otherwise want to own a car. Especially those living in centres with good public transport and cycling infrastructure.

Via Dense Discovery, a weekly, Australian produced newsletter, which I highly recommend you follow.

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