The American economist Milton Friedman famously said, "There is no such thing as a free lunch." However, Australian property owners are getting one. They’re currently experiencing an extraordinary surge in wealth.
To coin John Stuart Mill (1806-1873), Aussie speculators are "growing rich in their sleep without working, risking or economising." Just as we would expect, as we transit through later years of the 2010 – 2028 land cycle.
(To quote John Mill in full - “Landlords grow rich in their sleep without working, risking or economising. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.” Principles of Political Economy, first published in 1848.)
Data from the Australian Bureau of Statistics shows total household wealth soared to $16.2 trillion in the March quarter.
It’s a remarkable 10.2% ($1.5 trillion) jump compared to the previous year.
With around 9 million households in Australia, and two-thirds of them either owning outright or paying off a mortgage, it translates to an average increase in property owners' wealth of $25,000 in the year to March 2024.
The ABC pinned it with their headline – we live in a ‘property speculators paradise’.
I’ve done a fair bit of travelling over the years, and I’ve yet to find anywhere where the land price gains over the course of the land cycle exceed those that can be achieved in Australia’s largest capital cities!
Source: ABC News
"It's noteworthy," ANZ economist Madeline Dunk said.
"I suppose it's kind of cool.
"Your wealth is growing because house prices have just been rising and rising and we expect they will continue to go up"…
"Rising asset values continued to drive growth in household wealth in the first quarter of 2024, with house prices continuing to increase," ABS head of finance statistics Mish Tan said.
Let’s break it down in simple terms.
Landowners gain wealth because we do not efficiently tax the economic rent of land away via a broad-based land tax. Almost all our taxes (Over 90% of them) fall on labour wages and productivity. In such a system, speculation and the lure of economic rent must produce a land cycle.
The economy is choregraphed around the land market. When land values rise, it dictates the course of business and markets. As land values inflate, it drives consumer spending and corporate earnings. This in turn, inflates stock prices. The FIRE sector - the finance, insurance and real estate sectors - flourish. It draws in more investors to real estate markets, stocks, and financial products, pumping up the markets even more.
Simply – it points toward 2025 being a very strong year.
It’s exactly as we would expect and have continually forecast at LCI. It’s boom times ahead for now.
Whether investing for the final gains in this cycle – or the next – it’s my firm belief that you must have land in your portfolio of investments to truly advantage.
The thing is – it’s VERY easy to go wrong with property investment.
Growing rich in your sleep isn’t going to happen, if you can’t get the fundamentals right regarding what, where, and when to invest.
I come into contact, weekly, with owners that have made a loss on their properties (prices falling). Or seen little to no growth over the holding period.
Personally, I would only consider two types of property if I were investing for capital gains in real estate markets.