If you’re so smart how come you’re not rich?
Even Tony Soprano knows you should invest in real estate: “Buy land AJ, because god ain’t making any more of it.”
Wise words. For a Catholic…
It is true that the Pope is not making any more land. But the head of the Anglican church, the Queen of England, may indeed, as gods emissary on earth, may indeed be making quite a bit more land. And soon.
Real Estate in commonwealth countries, Canada, New Zealand, UK, and Australia have exhibited a mind numbing, death defying super bull market over the past four decades. The typical reasons given for the absurd, unaffordable, unsustainable rise in home prices in these countries are as follows: low interest rates, good governance, and restricted supply.
The first justification for high prices — low rates, is likely going the way of the dodo. Absent the deflationary pressures of offshoring and digital transformation, inflation is back baby, and so too, must higher interest rates be. As mortgages become more expensive, housing must become cheaper. Does it matter that land is traditionally an inflation hedge if nobody is buying land without a mortgage?
The second justification for high prices, good governance, has always been a difficult argument to make. Sure, you’ve got a greater expectation of stability investing in Australian real estate than Kazakstanian real estate. But as interest rates rise and “good governments” are forced to raise money by taxation rather than borrowing, those commonwealth countries governments will look less “good” and more “arbitrarily high cost”.
The third justification for high prices, restricted supply, is actually correct. Supply of available real estate in commonwealth countries has been restricted. Not by nature, but by fiat.
Have you ever wondered why a country like Canada, with some of the lowest population density in the world, also has some of the highest priced real estate in the world? This is because fully 88 percent of real property in Canada is owned by the crown. In provinces where real estate is most restricted by this method, prices are highest. For example, 94 percent of the Province of British Columbia is locked up in “crown land”. On top of this 94 percent, there is an additional significant portion private of land in British Columbia locked in an administrative category known as “land reserve”, in which land use is severely restricted for politically expedient reasons. In British Columbia alone, the land currently not eligible for sale on the open market for essentially arbitrary political reasons is equal to the land mass of Germany. And France… Combined.
This crown land is locked up for the reasons you might expect in any “good government”. It is loaned out many times over for the purposes of buying votes. Crown land can be gifted to the local conservancy, and to a memorial park, and to a mineral explorations group, and to a forestry company, and to a farming group for cattle pasturing, and to a snowshoe club, and to a first nations group, and to a hiking club, and to a ski resort… all at the same time, and all during different, subsequent election seasons.
If there were for some reason a political group in charge who no longer found it as excellent an idea to lend 95% of the land mass of Canada out to private interest for the purposes of buying votes as say, selling that same land for the purposes of generating operating revenue, then Canada alone has enough unused land to operate as the global swing producer of commercial and residential real estate. Can you imagine Canada performing the role of Saudi Arabia, controlling the global price of real estate with the stroke of a pen? While the land reserve in Canada is much greater than in other commonwealth countries, Australia for instance only locks around 30 percent of its landmass in crown land, there are still other, similar restrictions which arbitrarily limit the use and effectiveness of existing land to a similar degree. Restrictions on what types a land can be used to mortgage certain types of construction come to mind as a major bottle neck. For example, there are often limitations on how many acres of land can be included in the calculation for a properties mortgageable value. These restrictions in most countries begin to pop up around 5 acres.
If any of these arbitrary administrative restrictions are removed from land, the supply of buildable residential and commercial real estate in commonwealth countries could increase exponentially. Essentially Nuking the argument for high price from restricted supply.
As a final note, though it has been mentioned elsewhere often, changing demographics are also significantly bearish long term for real estate in the west. Boomers own a lot of residences. In 20 years they will be dead, with not enough humans to fill all their beds. In 5-10 years, the boomers will start selling those properties en masse to finance their retirements. Ruh Roh!
There are lots of houses! Lots and lots of them.