It’s important to note that the land cycle lays the foundation for all other cycles.
We must always view other cycles within the context of what is happening with the land cycle.
In the bull phases of the cycle, land prices will always rise faster than general economic growth for two primary reasons.
Reason 1: Land is not produced. Its supply is fixed in location. Yet we need it for everything we do! We live on it, sleep on it, work on it, play on it.
We derive all our sustenance from it. Look around you and try and find one thing that’s not made of the product of land, and you’ll pull up short!
Simply — there will always be demand for the best sites in town.
Reason 2: The market for land is conducted like a game of Monopoly.
Landowners are rewarded with a great windfall dollop of unearned income (economic rent) from speculating that someone will come along in the future and pay more.
Indicators that signal fair value based on land’s earnings are not there. In a rising market, owners hoard more sites for more gain.
Prices are paid based on the notion that the market will forever increase.
This lays the foundation for why the cycle has repeated, in the same pattern — high inflation, low inflation, fiat monetary system or not — throughout the centuries.
If you read my update a few weeks ago about the oldest housing index in the world, you’ll know we can trace an 18.6-year cycle back to the 17th century in regions of Europe.
In his 1983 book, The Power in the Land, Fred Harrison found a consistent 18-year movement in land values in more than 400 years of British history.
Likely, we could go back a lot further if we had access to good data.
Perhaps even to the time of William the Conqueror!
1066 was a defining point in English history — the Norman Conquest of England.
When William the Conqueror took England, he declared all the land ownership of the Crown.
Keeping a quarter for himself as a personal holding, he gave a proportion to the church and split the rest into ‘manors’.
These he distributed out under strict freehold conditions to his barons.
He understood the value of land and the emotional envy it could inspire; therefore, he was careful not to provide anyone with a proportion large enough to invoke rebellion.
William recorded it all in the famed Doomsday Book.
He wanted a record of who owned what, how much it was worth and how much was owed to him in tax, rent, and military service.
The document is the earliest surviving public record.
It contains a highly detailed survey and valuation of land holdings and resources in late 11th-century England.
There was nothing else like it created in England until the censuses of the 19th century.
We could mark this as the point in England in which real estate became a valuable, personal, and recognised asset — eventually to be traded, sold, and exchanged at the owners’ will.
Today the land barons are the financiers that mortgage the earth.
Reaping immense wealth from a continuous stream of interest that’s traded in a multi-trillion-dollar derivatives market.
Owning a plot of land is no longer reserved just for the aristocracy, however.
The cycle is supported by a large percentage of aspiring landowners (or surfs).
A population that submits to the destructive tax and monetary regimes of the country to gain a foothold on the mythical property ladder that leads to the great Australian dream.
John Howard once said he’d never been stopped in the street by anyone who complained about their house going up in value.
‘…there’s nothing wrong with people having more valuable houses.
‘This is a problem for first homebuyers, for people who are already in the housing market the increase in the value of their homes has been welcomed.
‘I don’t get people stopping in the street and saying — John, you’re outrageous, under your government the value of my house has increased.
‘In fact, most people feel more secure and feel better off because the value of their homes has gone up…’
No kidding.
All landowners, big and small, love high rents and rapidly rising land prices.
It’s nature’s free lunch.
Known as ‘economic rent’, or simply put, unearned income.
A rent-seeking ‘democracy’
In this respect, it’s important to note that the biggest rent-seekers have a controlling hand over all finance and tax policies.
There is no true democracy in a rent-seekers paradise.
Nothing has changed since the days of Thomas Bent.
Melbournians may be familiar with the historical figure.
He was the 22nd premier of Victoria.
His corrupt dealings are well documented.
He used his political clout to extend the railway line from Caulfield to Cheltenham.
It just so happened that it enormously increased the value of his own property developments — all of which fell alongside the proposed route!
Bent was a real estate man. He knew how to advantage of the system.
Yet despite his corrupt dealings, he was made a Knight Commander of the Order of St Michael and St George (KCMG).
Upon his death, he was given a state funeral and celebrated as a hero!
Bent is buried in Brighton Cemetery on a large plot of land, in a prime corner spot that enables all that pass to gaze at his monument!
It’s only fitting for one of our famed rent-seekers, don’t you think?
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| Source: mapio.net |
As I said, little changes when it comes to the repeat of the land cycle.
Hence why Victorian Labor Premier Dan Andrews was questioned by the National Anti-corruption Commission inquiry into allegedly corrupt land deals between a developer and Casey councillors — known as ‘Operation Sandon’.
We’re talking about large donations gifted in return for rezoning land.
In fact, it was not so long ago that one of Melbourne’s strategic planners wrote me a letter stating:
‘The focus for vested interests — the landowners and developers — has been to lobby state government to get their land rezoned ready for development ahead of others.
‘The outcome of this has been numerous examples of leapfrog development sites.
‘The department responsible for planning the new precincts prioritises those they focus on by whether the developer will pay their wages or not.’
Rezoning land — it’s the most lucrative way to turn a profit with nothing more than a tick of a bureaucrat’s pen.
After all, who wants to work for a living?
Not you. Or me.
That’s why you’re here, to find out how you can also play the game of Monopoly as the rent-seekers do.
And this is the key to understanding why the cycle must repeat.
It’s also why the concentration on ‘housing unaffordability’ continues to dominate politics.
Once the landless become landlords, they will never vote against any policy that would reduce inflation in the land market.
It’s why the ALP whisked away their mandate to scrap negative gearing and capital gains benefits for investors after their last election fail.
All the issues we face today — inflation, inequality, labour shortages and high and rising land prices (and rents) — have their cause rooted within the land cycle.
The booms and busts are doomed to play out no matter who’s in power.
Housing policies, historically, from both sides are devised to pump up prices.
Labor has pledged to continue this mandate by opening the door to record numbers of immigrants, despite Australia being in the midst of one of the worse housing supply shortages this country has experienced in recent history.
The first home buyer scheme has been extended to allow friends and siblings to access the benefits — potentially opening the door for tens of thousands of new entrants to compete in the market over the next few years.
And in the latest news, The Australian has reported that non-bank lender Resimac has (according to its broker communications) cut its recommended buffer for new loans from 300 basis points, as recommended by APRA, to 200 basis points.
It, of course, opens the door for more non-bank lenders to do the same.
All in all, we can conclude that the cycle is right on track. We’re heading into the final boom phase that will take us to an overall peak in prices around 2026.
Best Wishes,
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Catherine Cashmore,
Editor, Land Cycle Investor
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