Don’t wait to buy land; buy land and wait…
I saw one of those interesting posts on the Property Talk Australia Facebook group yesterday, showing parcels of land for sale up in Collaroy, in Sydney's Northern Beaches.
The auctions were scheduled for April 1922, 102 years ago next month, with a £2 deposit required for purchase.
Source: Property Talk Australia
Today these blocks would have unimproved land values of around $2 million, if not a bit more for some of the superior blocks up on the beaches, being the popular part of the world that it is!
Of course, we've been through periods of high inflation and low inflation, high interest rates and low interest rates...and even a shift from the old pounds to Aussie dollars in 1966.
Some of the blocks are also better than others, granted, but by my rough calculations that comes to a compound annual growth rate of more than 11 per cent (but less than 12 per cent).
Split the difference, and call it 11½ per cent.
As Cameron Murray pointed out on last week's podcast, as we get wealthier as a nation, we simply spend more of our wealth on housing.
It’s a much simpler and better model for thinking about the user cost of real estate, and explains well why Aussie housing gets more expensive over time.
Inflation hedge
Come to think of it, 11½ per cent per annum is not too different from total returns from stock markets over the same kind of timeline.
The difference with real estate is that you can typically leverage the results 5x or more.
Of course, every so often articles surface about whether real estate is a "good" investment or a "sub-par" investment, and what-not.
But I normally pretty much ignore them because they rarely take account of how leverage is used in the real world, how in imperfect housing markets you can add value to properties through renovation or extension, or how you can redraw the equity you create to buy more investments.
It's also easier to use leverage through multiple cycles, do the unique lending conditions for residential housing.
That's presumably why I know considerably more people with $5m to $10m property portfolios than I do stock portfolios.
I reckon we can say that at the very least this graphic underscores why people like to own land and real estate in the landlocked city suburbs of Australia.
At a time when currency debasement is of concern, property tends to work pretty well over time as a reasonable inflation hedge.
I read in the financial media this week that construction unions are pushing for 26 per cent pay rises - whether that comes about is another matter, but I doubt the cost of new housing is going to fall any time soon.
Inflation expectations ease
In that context, it was a relief to see consumer inflation expectations dropping back to 4.9 per cent, the lowest level in more than two years since February 2022, according to ANZ-Roy Morgan's survey.
Consumer inflation expectations are now much closer to where they were in 2018 - when the official rate of inflation was actually below the 2 to 3 percent target range - so are likely commensurate with the Reserve Bank hitting its inflation target.
Consumer sentiment generally remains low, with higher interest rates slowing consumption, and with wages growth also now rolling over.
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