Yesterday I left you with the idea that that the Aussie property cycle is onwards and upwards from here.
Opinions in the market are a dime a dozen — even mine.
Can we see any evidence of this on the ground?
Absolutely. Take builder Cedar Woods Properties Ltd [ASX:CWP] by way of example.
They came out yesterday and told the market that they are spending over $60 million to acquire land in Melbourne’s west.
This gives the company another 725 future lots to help them grow their earnings for the next eight years.
Clearly the executive team at the company take the view that the property cycle trumps the short-term effects of lockdowns and the Delta variant on the housing market.
Now, there is always the chance that this investment is mistimed or poorly allocated. But I don’t think so.
The biggest input cost for a builder is the land they need to develop. Better to lock it up now before it inflates even further.
And what of the vendors in this instance?
They are going to bank millions of dollars…for doing what?
The answer is…probably nothing.
They happened to have, or cleverly acquired, land needed for a growing city to expand.
The locational values of these property titles, probably originally agricultural, inflate as the city grows.
The classical economists pointed out, rightly, that land had a peculiar quality.
It has a value that accrues to it that did not result from using labour or capital — effort — to produce it. It’s a surplus value.
You know it today as a ‘capital’ gain.
Society can choose to do what it wants with this value.
It could, if the community so desired, pay it into a common fund to pay for social services.
Since no one individual creates it, the community can quite rightly lay claim to it.
Norway’s sovereign wealth fund, built on surplus oil rents, runs along this idea. It now has over a trillion dollars.
However, in modern Australia, and the rest of the West, we allow this surplus value to be privatised.
You can see the enormous profit potential in this from the deal above.
But that’s on a grand scale.
Most homeowners — me included — accrue a share of this value via the capital gain on our properties. Hence then the modern conflict in today’s societies.
Those who own a property are able to capture some of this rising ‘rental’ value.
Those that don’t, or more likely can’t, access the housing market are shut out of the free gain that society allows to be handed out to whoever has the wherewithal to grab hold of it.
That means, however, there are those left out of this free lunch — those who don’t own property, usually because they can’t afford it. That means they have to fund their lifestyle and retirement aspirations via wages or business profits.
A well-run business can hold anyone in good stead. But most of Australia’s workers earn wages.
And Australia’s regular wages don’t grow at anything like the rate of land values in the housing market.
Most people think this is a mystery because they don’t understand high land prices mean lower wages in a direct link.
And so, over the next five years, we can expect more industrial action from the trade groups as they fight for higher wages as workers fall behind. Right now, it’s the teachers in Victoria.
See below…
‘The union representing Victorian state school teachers and principals has taken the first step towards industrial action, including a possible statewide strike, over its stalled workplace agreement negotiations with the Andrews government.
‘As tensions rise between “exhausted” teachers demanding a 7 per cent annual pay rise and a state government intent on tightening its public sector wage bill, the Australian Education Union’s Victorian branch unanimously agreed on Friday to finalise plans for a ballot where teachers would vote on what action to take.’
We’ll see where this goes. The overall outcome is less important than the urge to strike in the first place. We’ll likely see more of this in the next five years as property prices go higher…and those living on wages fall further behind.
Regards,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.
