When you add it up, property has more friends that any other asset class in the school-yard.
Here’s a joke I just made up:
What’s the difference between democracy, and mob-rule?
Democracy takes longer.
(These blogs are mostly about me living out my comedian fantasies.)
Note that mob here doesn’t just mean a majority of people. It’s also in a ‘organised crime syndicate’ kind of way. Like the mafia, the mob.
Mob rule is not just about who has the numbers, but who has the most pitchforks.
Australia is a good example of mob rule. It’s enlightened mob rule, in the sense that we’ve largely replaced pitchforks with political donations, but the effect is much the same.
Whoever has the power, makes the rules.
If you don’t like it, the mob generously gives you the right to complain about it. Blogs are free.
Not that I’m necessarily complaining, and in this particular case I think the mob has my back.
A few people have written to me after last week’s blog, genuinely worried about what a Labor government might do to property prices.
Labour says they want prices to fall. They’ve got policies that will make them fall. So there’s a good chance they’ll fall right?
Well, maybe. But my first instinct is to check in with the mob. Where does the mob stand on this issue?
Oh. The mob doesn’t like it.
The interesting thing about property, and one of the reasons it’s always been central to my wealth creation strategies, is that everyone wants to see prices rise.
Always and forever.
Since the end of the gold standard (and probably the fall of Rome), our economy has been nothing more than a social construct. The economy worked because we agreed it would work.
We gave governments a monopoly on violence and the ability to print money. We all agreed not to question whether that useless bit of paper was really worth anything, and it all just worked fine.
And mostly that’s because everyone’s got an incentive for the system to keep working. It feeds us, gives us pretty things. It’s a lot better than what most people imagine is the alternative.
There is a consensus that the piece of fiction we call the economy is real, and so, for all intents and purposes, it is real.
When I look at property, I see the same thing. Sure, some of it rests on shaky foundations (like fiat money!), but all in all we like it.
And much of its momentum is because no one has an interest in seeing prices fall.
Take a look around Australian society, and ask yourself who has an interest in lower prices?
Definitely not mortgage brokers or real estate agents. They’re paid on percentage commission, so price falls mean a pay cut.
Not the banks. They’re paper wealth is built on mortgage lending. They have no interest in seeing their business model disintegrate.
Not investors. Their wealth and capacity to grow their portfolios leverages off the value of their holdings. No incentive to see that fall.
Not owner-occupiers either. That’s the nest egg we’re talking about, if they haven’t already drawn out the equity to spend on other things.
And not politicians, despite what they say. Take a look at the property holdings of Australia’s parliamentarians:
96% of our pollies own a property, compared to 50% of the general population. Half of them own an investment property, compared with just 10% of the general population.
And they tend to own multiple properties. The average Coalition member owns 2.8 properties. The average Labor member owns 2.1.
So how much personal incentive do these politicians have in lower house prices? Not much. It might be good politics but it won’t be good for their personal wealth.
(And which one will win out at the end of the day?)
And since you can’t short-sell property, pretty much the only segment that has any interest in lower prices is first home buyers. They’d like houses to be cheaper.
In any given year, about 100,000 first home buyers buy their first place.
Currently about 8 million Australians own property.
That’s a ratio of 80:1!!
That’s what mob rule looks like, even before you add in the collective weight of the banks and the politicians and the entire property and building industry.
So when I hear all this talk that politicians are going to hit prices on the head, I’m pretty sceptical.
Any political party that did that would be going against the mob, and going against their own personal financial interests.
Maybe I’m a cynic, but I just don’t see that happening.
The balance has been shifting a bit recently – with more baby-boomer parents realising that they’re on the hook for their kids’ houses. That’s starting to shift the equation a bit.
Suddenly there’s a new class of home owners who would prefer that houses would be cheaper so they didn’t have to give more of their own retirement funds to their kids.
But even then, I think this is likely to be fairly short-sighted. They want their kids to have a cheap house, but they wouldn’t wear a price fall in their own home’s value.
All this is why I tend to be fairly relaxed about any fear-mongering in the property market.
You might say that a social–construct isn’t much to hang your hat on. But in the modern economy, that is literally all we have.
And the mob much stronger than you think.
Feel like the mob’s got your back?