Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Tuesday, 4 November 2014

Australian Land Values Soaring

Land Values Pumped Higher

The ABS released its System of National Accounts for 2014-14 last week which contained some interesting data on aggregate Australian land values. 

As discussed on this blog often before, while commercial property tends to offer comparatively high yields. this is at least in part due to a comparative lack of capital growth in this asset class. 

While residential land values have boomed over the years, commercial land values have been virtually flat since 2008 and have simply never performed in the same manner. 

Residential land on the other hand...


This is not surprising, since the entire Australian financial and taxation system is set up for us to strive for home ownership and in many cases, to strive for property investment on top.

I noted the year 2008 above because it was at that time that the Australian property bubble theory really garnered support (to be fair, much of the financial world outside of Australia was imploding at that time), with some big studies eventually being released explaining why the Australian land value bubble must collapse.

The data series produced were never wrong, but they were frequently misinterpreted because users of the data took no account whatsoever of the factors which did not support their theory that land prices must collapse.

For example, disregarded were many of the real world factors which have served or continue to serve to push land values higher, including the deregulation of the financial system, interest rates falling substantially from above 15 percent to only 2.50 percent today, massive population growth in Australia, and a string of other factors as often discussed here before.

Six years on, let us now consider on what has happened to land values according this latest ABS data. 


Goodness. As the chart shows the thesis that land prices would inevitably suffer an epic crash from 2008 levels are looking shaky to say the least.

Over the last six years, residential land values have continued to increase by 37 percent in New South Wales, by 46 percent in Victoria, 21 percent in Queensland, by 33 percent in South Australia and by 11 percent in Western Australia, having previously already boomed in Perth. 

Land values have taken off dramatically in all of the less populous states too.

Of course, with Australia's population growing at around 1.7 percent per annum, and thus some new land being rezoned for residential use, we would expect to see some increase in aggregate land values.

In fact, between June 2008 and June 2014 the Australian population increased by 2,051,000 or 9.6 percent (although apparently, it was further argued, population growth does not impact dwelling prices).

But clearly a population increase of less than 10 percent in no way accounts for residential land values in Australia increasing by 33 percent across the same time period. 

For completeness, here is what happened to commercial land values across the states. 


And rural land values, which outside of New South Wales, have done absolutely nowt.


Overall, the data shows that the demand for residential land, which is so heavily focused on a few key coastal locations, particularly Sydney, Melbourne, Brisbane and Perth, has pushed land prices higher over time.