Why you can’t afford to buy your own home! And why the upcoming housing crash is inevitable.

Today I found something that frankly should be far, far easier to find.

It tells you a lot about our society today.

Last month, the Australian Bureau of Statistics (ABS) released the annual national accounts for 2023-24, which included extensive land value data.

It’s a rare thing these days to find official and reputable primary sources when it comes to data about land values anywhere in the world.

And that trend is quite deliberate I must say.

So today, this newsletter will take full advantage of this data dump and focus on what Australia’s journey has been since the beginning of the current 18.6-year Real Estate Cycle in 2011-12.

Frankly, everywhere I go now in this country, I see more evidence that land prices today are simply too high. From beggars at my local supermarkets to huge tent cities that have sprung up in public parks.

The same is true in every city around the world.

Should we feel proud of this?

Of course not. Today, let me use the example of Australia to show you just how much things have changed since the start of the cycle. And by this I mean: how much our society has been distorted out of all recognition.

And why, if you ever hope for better days ahead for yourself and your children, knowing your real estate timing is now more important than ever.

First though, let’s start with the big picture.

Land values underpinning the Australian housing market increased by 8.8% during 2023-24.

“Land values”, that’s key. Not what was built on the land in the form of dwellings, just raw land. This puts Australia’s land values, according to the ABS, at a total of A$9.2 trillion.

Residential land accounts for approximately 84% of this or A$7.7 trillion.

To give you some idea of the scale of dominance residential land now holds, the below chart handily covers the previous two real estate cycles. The depths of the crash in 1989 to the peak of 2008, then the subsequent declines into 2011-12 to today.

Residential values stand out as an enormous outlier category here. It also demonstrates the mild stability in terms of rural and commercial values in comparison.

Next let’s take this chart apart to focus on residential. What does the chart look like when both include land and structural values together?

If you still know of people who insist that buildings themselves appreciate, show them this chart.

As a general rule, a brick is a brick. Its input costs are almost the same regardless of where they are made.  Steel beams are the same. So if the price of a house that is going up, it’s because of the increase in the value of the land on which it sets. And this is because it’s the land that captures society’s gains.

While there was is an increase overall in structural values, it was tiny. In 1988 it was 0.88 times GDP. Now structures are valued at 1.04 times GDP.  This reflects an increase in the costs to build, but this increase is overwhelmed by the land component costs.

Nowhere is this felt more than in the new home market. Remember, those who already own their home during the time periods stated in this family of charts have in effect benefitted via a reciprocal increase in their gross home equity.

For those on the outside trying to get in, there has been the opposite effect. Their road to home ownership continues to get harder.

According to the Urban Development Institute of Australia, land costs have risen significantly in all major capitals during the last decade. The chart below shows this across the six major population centres in Australia since 2013.

This next chart complements the one above superbly: it shows the average lot size for new developments for those same population centers.

Almost a polar opposite trend. I will explain why that is so in a moment.

I trust however you are beginning to work out why our societies around the world are fracturing into two camps, of the haves and the have-nots. Ask yourself: is this the world you want?

Is this the future you and I are spelling out to our children? If the only realistic way for new homeowners to ever get in is the bank of mum and dad or awaiting inheritances, do you see how that also solves nothing?

Instead, it further entrenches the gap. We’d have a form of apartheid-based land discrimination reflecting those privileged enough to either buy or inherit real estate.

Which leads us to today. I ask you once again to examine the last 2 charts above.

They show you a story. The only way that this can possibly play out. Land values are now so high that those property developers still standing have only one true choice to achieve their necessary business margins.

The land they buy to develop must be subdivided to its fullest extent.

Can you see the inverse relationship between the last two charts now?

As the average lot price increases, the average lot size must decrease. More building, less land. And the reason is simple.

Developers must at all costs ensure it is they who are maximizing the full extent of what economic rent can be garnered after costs at the buyers’ expenses.

It can be no other way.

Not when land prices are at historic levels. And so, suburb after suburb of cookie-cutter houses spring up across the most marginal of locations at astronomical prices. All looking exactly the same, with roof edges almost touching one another. No front lawn, no back lawn, just a large footprint of a home.

Take a look at the image below.

It shows that developers have squeezed the very last drops of blood out of these sites. For the buyer, there is no such option because they need to a place to live.

You can’t add a deck, pool, extra rooms, expand the garage…nothing. Surrounded by hundreds of other similarly constrained owners.

Yes, it’s a home.

But as a symbol of just how badly society has decided to treat its one resource that cannot be duplicated, land. This is a very sorry tale.

But, dear reader, nothing compared to what’s about to come.

And it’s coming. The set-up is in. The end result is beyond dispute. It’s simply now a matter of time.

This is why this part of the cycle is labeled the ‘winners curse’ by the PSE team.

By ‘winning’ the property auction, you’ve actually lost. Check again the charts above. The mortgage you require to buy today has never been higher here and across the world.

Yet the risks associated with the collateral used to buy your new home have never been greater. Ask yourself; if/when the market falls, who in their right mind is buying properties like the ones above you for anything resembling fair value when you need to sell?

As a buyer, I’m fighting off dozens of vendors undercutting each other just to get rid of them.

Are you ready? Have you prepared for what I’ve outlined to you here because in time it will violently unwind at a rapid rate. And this won’t just be confined to the value of your house. The stock market and the value of other assets will crash as well.

If you don’t understand why or what you need to be ready, it’s not too late to start. Your ticket to financial security and prosperity begins with a sound understanding of precisely how the land markets work.

Knowledge that the Boom Bust Bulletin (BBB) can help you learn.

Each month the BBB will help guide you through the 18.6-year Real Estate Cycle with the latest developments as the cycle turns. It is designed to provide you with the basics of why land must always be at the centre of your financial and investment research.

Because only then will you have the timing necessary to understand when and how to ride out the very worst of the upcoming land market crash and survive intact.

And by extension, develop a market edge no-one else in the market will have.

Is there any point now in sugar-coating this?

Your world is soon to be placed upside down in a manner only those who have lived through a land-price led recession can truly comprehend.

Making the wrong decision now will haunt you for the rest of your life.

The margins for error are almost gone.

And yet, for $4USD a month, you can learn to take your financial future into your own hands. Using over 200 years of repeatable real estate history. What an incredible bargain!

The door is still open – just.

Will you take the plunge and learn how best to profit and protect?

I truly hope so.

Sign up now.