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Why long-term Melbourne property prices will rise…

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The Victorian Government is on a hiding to nothing – there is just nothing they can do to bring house prices down.

How desperately chronic is the housing shortage in Australia?

This chronic – chronic enough that this fluff from the Victorian government about streamlining the energy connection process can get passed off as an ‘affordability solution’:

Power companies AusNet Services, Jemena and CitiPower, Powercor and United Energy have agreed to a series of commitments to speed up the rollout of power in the areas where they provide electricity, state Treasurer Tim Pallas said on Tuesday.

“We’re acting to make sure new homes are connected to electricity faster, cutting costs, and making it easier for Victorians to access new housing,” Mr Pallas told an Urban Development Institute of Australia audience…

UDIA Victorian executive director Danni Addison said the changes would help speed up housing production.

“The urban development industry is working hard to meet the demands of population growth, but people can’t live in a home without power,” Ms Addison said.

How is this about helping boost “affordable supply”? I mean sure, it helps at the margin, and it’s definitely better than not doing it, but still I can’t see millennials priced out of a home organising a ticker-tape parade over this one.

“Yay, this will shave at least $1500 off the purchase price. Finally the dream of owning my home is within reach. Honey, pack your bags.”

But seriously, this probably is the best that any government can muster.

Because, meanwhile, prices in Victoria continue to march onwards to all sorts of crazy.

Land prices are the real flash point. HIA-Corelogic reckon that Melbourne’s median lot price per square metre surged a massive 30% in the past year. That takes the typical median lot price per square metre to $359,000.

Remember, these are Greenfield sites, many of them located so far from the CBD of Melbourne that they have West Australian post codes.

And even then, it’s going to cost you $360K for the land, even before you start looking at landing a caravan on it, or whatever you can still afford.

And this is all despite the fact that median lot sizes in Victoria are actually shrinking!

A few weeks ago, Satterly Property Group announced they would start offering lots in Melbourne as small as 80sqm – less than a fifth of the size of a traditional lot – in an attempt to boost profits.

Sorry, I mean, in an attempt to offer anything that could reasonably be considered ‘affordable’.

And so in Melbourne, if you don’t have at least half a million, there’s no chance of securing a new house and land package, no matter how far you are willing to commute.

How has this happened? How is it still happening?

This is the chronic undersupply in action. When there’s too many people and not enough homes, then prices will rise. It really is as simple as that.

And while supply has continued to come on-line at its usual dribble in Victoria, the population has actually boomed.

Melbourne is now adding a full MCG worth of people every year.

That’s a million people every ten years:

There is just no planning response that the Victorian government can come up with that can deliver the housing that is needed to stop the market getting tighter and tighter and tighter.

Which in turn means, prices will just go higher and higher and higher.

You know, except streamlining power-supply regulations…

That’s going to have a big impact.

JG

Thought the codes kept you safe? Think again!

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A new class-action will have a big impact on the building industry.

I reckon the most interesting case before the courts right now is a class-action by the owners of apartments in Melbourne’s Lacrosse residential tower.

Basically, Lacrosse had the same outside cladding that was responsible for the Grenfell disaster in London. There was a fire in 2014 (thankfully no one was killed) and the owners are being forced to replace the cladding.

The owners, obviously, are trying to sue the builder, LU Simon, to make them pay for it.

From the AFR:

They want $24 million. On Monday, owners of the 328 apartments in Melbourne’s Lacrosse residential tower will start their long-awaited case for damages against builder LU Simon, over the combustible cladding placed on their building…

As they seek redress including an estimated $10.7 million in recladding costs, $1 million in lost rent and emergency accommodation costs and over $500,000 in insurance premium hikes, the Lacrosse owners are not the only apartment owners in Australia trying to resolve a cladding problem not of their own making. But they are the highest-profile group so far. And there will be more…

The Lacrosse owners are now finalising a loan of $11 million to replace the polyethylene-core panels that still wrap around their building on Melbourne’s La Trobe Street…

Combustible cladding forces insurance premiums higher, devalues apartments and even makes apartments unsaleable… And when it catches fire, it is dangerous…

It’s going to be really interesting to see where this one goes.

The best-case scenario for the owners is obviously that the builder has to foot the bill. That leaves their property values, (after the dangerous cladding has been replaced) more or less in tact.

But it’s not clear that it is going to go that way. There’s a good chance the builder did everything by the book – purchased cladding with the right certification and installed it correctly.

The problem could well be, as a lot of people in the building industry have been telling me, that sometimes when you’re buying cheap building materials from China, they’re not exactly as they claim to be.

For example, not as fire-retardant as they claim to be.

So the builder might have been doing the right thing, putting their faith in the certification processes behind the materials. Is it really their fault if the Australian or Chinese government certification process were subject to rorting?

It hardly seems fair to make them pay if they’ve been doing the right thing.

But that just leaves our owners on the hook, and it’s definitely not their fault.

But even if the courts find the builder liable, where does that leave us? How many builders and developers across the country have used materials that they thought were up to code?

Do we now say that every builder in the country is responsible for testing the quality of the materials that they use and ensuring that they’re up to code? Like, seriously?

That doesn’t seem workable.

It may also be a moot point in some places like NSW. The government there recently reduced the warranty claim window from seven years down to just two:

Also from the AFR:

Many owners of the 1000 NSW buildings identified with possible non-compliant cladding won’t be able to claim against their developer or builder because the two-year window to make such claims will have passed, a property lawyer says.

A change in law two years ago cut the window to make such claims from seven years, in part to reduce the risks for the statutory warranty insurance the state government underwrote.

This meant owners of buildings built under a contract agreed after 1 February, 2012 – which includes many built in the current housing boom – would not be able to claw back the costs of rectifying any non-compliant cladding. This is the view of David Bannerman, the principal of North Sydney-based Bannermans Lawyers.

So then it’s on the owner’s head?

So what, our due diligence as buyers now involves chasing a paper trail of materials used to make sure they were up to code – I mean, genuinely, really-truly up to code?

Who’s got time for that?

This is all just throwing a lot of uncertainty all over the place. As someone who buys property, but also as someone who develops property and engages builders, this is all just a risk I don’t know how to place.

Because while I think the flammable cladding is the highest profile example, I get the feeling it is the thin end of the wedge. Who knows what next?

So I feel sorry for the owners of Lacrosse, I feel sorry for the builder, but I’ll be watching what happens closely.

Which property segment is booming?

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Headline numbers are hiding a big secret. Some markets are booming.

I’m going to show you what segments are actually booming in Australia right now, but first I’m going to show you a scary picture.

This is every property price decline in modern Australian history:

Whoo-oooh.

Ok, let’s pull a few things out of this. The first is that declines are common. We’ve had seven in the past 30 years – so like one every four years or so.

The property market moves in cycles. I think a lot of investors might not be aware of this – they might never have lived through a serious turn in the cycle before.

And so Sydney starts hitting the brakes and they start wetting themselves. At the risk of sounding like a grizzled old investor, get over it. It’s what markets do.

If you can’t tough it out for a soft-patch that might last a year or two, this game isn’t for you.

(Not that I know what game is. Bond trading?)

Anyway, the other point is have a look at where the current cycle sits in historical perspective.

On this chart, the peaks of each cycle have been lined up, so you can track each one from its peak.

And what you can see is that the current cycle – the red line – is actually the tamest cyclical downturn in history.

Let me say that again unless pants-wetters are still reading my blog. This is the tamest correction in history.

It’s still early days, sure, but let’s just remember that. Nothing to flip your lid over here.

But here’s what I actually wanted to share with you. This is the current property market broken up into segments. The top 25% most expensive houses. The middle 50% and the bottom 25%.

So look at what’s happening here. The top end of town – the top 25% – is falling, coming off some pretty heady peaks.

However the middle 50% – the majority of the market – is still growing, although it does look like the pace of growth is slowing.

And then there’s the bottom 25% of the market, which is going gang-busters.

And so only the top 25% of houses are falling, but they’re falling far enough fast enough that they’re able to pull down the aggregate numbers.

And enough to put a bit of doom and gloom on the paper headlines.

And so what’s the real story here?

Yes, the property market has peaked, and we’ve entered an historically common cyclical downturn, which, in fact, is the most benign downturn in modern history.

BUT – when you pull it apart, that downturn is entirely due to the top end of town. Without the falls there, the overall market would be growing strongly.

And some segments – your cheapies and your entry-level homes – they’re actually booming.

So tell me again what kind of market we’re in?

And tell me again what I’ve got to be afraid of?

JG

Is a rate cut coming?

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Looks to me like the RBA has their finger on the trigger.

The talk at the moment is all about the slide in property prices. This is a little overblown in my mind, but a consolidation is definitely underway.

To get a sense of where the current momentum is, take a look at this chart here. I ripped it from a recent RBA speech.

This is ‘six-month ended annualised’. What that means is that it takes the last six months and then says, what if that pace lasted for the whole year?

So if prices grew 10% over the past six months, then the six-month ended annualised is double that – 20%.

Anyway, it amplifies trends, but it’s a good way to get a handle on what the current momentum is.

And what is shows is that the consolidation in prices is well underway in Sydney and Melbourne. On that annualised basis, Sydney looks like it’s falling at about 10% per annum. Melbourne looks closer to 5%.

We probably won’t actually hit those numbers in actual growth terms, but the momentum is clearly heading lower in those cities.

Interestingly, prices in Brisbane are dead flat, and it will be interesting to see if they get dragged down by the action in the bigger capitals. And over in Perth, it looks like the bottom is in, with prices having stabilised over the past six months.

That’s good news for Perth, but nobody cares about Perth. Not in policy circles anyway. If they did, we would have started cutting rates months ago.

And so what we’re looking at is a market that has clearly entered a consolidation phase. As I’ve stressed before, there’s no surprises here. The Sydney and Melbourne markets did get red-hot, and with the regulatory assault coming out of APRA in recent months, a consolidation really was inevitable.

The question now is, what do authorities do about it?

Now maybe they’re prepared to let prices slide for a while. They’ve been saying for a while that they’d like prices to ease a bit, but that has limits. They don’t want to crash the housing market. In fact, given the carnage it would unleash on the broader economy, they’d be looking to avoid a housing crash at all costs.

And while we’re on the topic, what does a crash in housing prices look like?

Well, I’d say if Sydney prices were consistently falling by 10% per annum, that’d be raising some red flags.

And so do we think that is what the RBA is doing here? Raising a red flag? They’ve released this clever little chart that shows that Sydney prices are currently falling at a 10% clip, and we wouldn’t want to see that going on for too long?

Are they flagging that rate cuts are coming if the market doesn’t pull up in time?

Maybe.

Here’s another piece of evidence. It compares auction clearance rates with the timing of recent rate cuts.

 

What it shows is that auction clearance rates have come off in recent months. Auctions aren’t as successful as they used to be.

What it also shows is that the last time clearance rates were this low, the RBA started cutting official rates.

Long story short, the RBA has all the justification they want to start cutting rates. No one would blame them.

The only question now is, do they want to?

As I said, I think they’ll be happy to let prices consolidate a little further, but not too much.

As far as I can tell, the RBA has their finger on the trigger already.

Make my day.

PurpleBricks goes plop. What does it mean?

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Maybe real estate agents aren’t ready to be disrupted? Or is it just where the market is at?

I’ve been following the PurpleBricks story with some interest.

Basically, PurpleBricks wants to disrupt the real estate agent business. So far it’s done pretty well in the UK, but its foray into Australia isn’t faring too well, at least according to the Australian Financial Review:

(with the disclaimer that bad news could always be about PurpleBricks failing to grease the palm of their media suppliers – I’m always open to that idea.) Anyway:

“Broke” real estate agents are quitting British disrupter Purplebricks in droves as the fixed-fee agency’s low-margin, high-turnover business struggles to achieve enough sales amid a slowing Australian housing market.

Research by The Australian Financial Review found at least 27 agents had quit Purplebricks Australia since March with overall agent numbers now down to 88 from 105 reported by the company in October when it filed its British interim results.

Purplebricks territory owners (franchisees) and agents, who spoke to the Financial Review, said they were struggling to make a living and were preparing exit paths after the $100,000 to $180,000-a-year salaries they were told they could earn failed to materialise.

… Internal sales documents obtained by The Australian Financial Review covering the first two weeks of June highlighted underperformance by its NSW agents.

The documents indicated that 27 NSW Purplebricks agents secured a combined 26 listings.

… Agents who earn $1000 per instruction – with the remaining near $5000 of the upfront fee going to Purplebricks – require a high volume of listings to make a living.

Interesting.

I don’t think PurpleBricks is the disruptor it paints itself out to be. It’s not fundamentally changing the business model. Rather, it’s simply restructuring the back end – leaving the front-end – the real estate agent – in place.

And that structuring seems to be selling itself on sort of economies of scale (a large RE company with no physical offices), and apparently using its muscle to squeeze real estate agents on their cut.

It’s not all that disruptive. It’s not Uber.

And just like real estate agents, it’s a volumes business. Success depends more on the number of properties you sell rather than the price you get for them. And being flat-fee, then it all depends on volume.

It’s just that right now, market conditions are making it tough for volumes businesses. There’s a lot of doubt in the market, buyers are cautious, and vendors are preferring to hold.

And so sales volumes are now tracking below their ten-year average:

The sleepiness of the market is showing up in New Home Sales as well, with a pronounced downturn continuing:


So with volumes approaching some of the lowest levels in years, this is a crappy time to be trying to launch a volumes business, no matter how disruptive you are.

That, and ‘PurpleBricks’ as a name sucks. It makes you think of toy lego or something (the only purple brick I think I’ve ever seen), and that opens you up for existing agents to attack you on your professionalism, which they’ve done.

That, and I’ve pronounced it BurplePricks on at least three separate occasions.

And so for now, looks like your real estate agent is safe.

I still think the market is ripe for disruption.

But it won’t be today.

Where the market is really at (My thoughts)

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Cut it up and things actually look robust.

Where is the market fundamentally at?

This is an important question in any asset class, but it’s particularly true of property. And that’s because the market can get buffeted about by all sorts of ‘extra-market’ factors. And by that I mean things like the kind of restrictions APRA’s had in place for last two years.

And you’d be forgiven right now for thinking that the market is fundamentally softening. Headline numbers are soft, prices are actually slipping in Sydney, investor lending is cooling.

But in my mind, these things are more sea-foam than sea – more noise than signal.

A few charts will help tell this story I think.

First, let’s look at what investor lending is doing – this is amount of finance going to investors.

You can see that investor lending growth slipped into negative territory in September last year. At that point, the amount lent to investors was less than it was at the same time a year earlier.

So ‘the market’ is getting softer right?

Well, maybe. But if you showed this to the staff at APRA, they’d be saying ‘job well done, boys.” This is exactly the kind of outcome they were trying to engineer. Investor lending had been growing too quickly (growing at more than 40% a year in 2014!) so it was time to rein it in a bit.

What followed was a bunch of restrictions at the individual bank level, and investor lending, predictably, started to fall.

So while it looks like a cycle, it’s has nothing to do with the normal cycle of the market, and everything to do with APRA.

To make that point clearer, come over and have a look at the same chart on housing finance, but this time, just to owner-occupiers.

The first thing to note is that these charts are on the same scale, so the smaller hills and valleys on the owner-occupier chart tells you that the cycle of owner-occupier lending is generally much smoother and gentler.

The other thing to note is that growth in owner-occupier lending peaked about the same time as investor growth turned negative. So just as investor lending was cooling, owner-occupier lending was pumping.

Partly, I think this was about a bunch of lending that would have normally been classified as ‘investor’ was instead classified as ‘O-O’ – just to get around the APRA restrictions. But that can only be a small part of the story.

Rather, it shows that as the APRA restrictions were taking effect, the fundamental demand in the market was strong.

O-O lending has since followed investors down, but even then, we haven’t dipped into negative territory. We’re still lending more to owner-occupiers than we were this time last year.

Lending is still growing.

And the other interesting thing in all that is that lending to first-home buyers is actually picking up.

And now, the percentage of O-O lending going to first time buyers is back to around ‘normal’ levels, after freaking everybody out for a bit there.

So to me, when I look at these charts together, what I see is this: Yes, investor lending is falling thanks to the APRA restrictions. But looking through that, owner-occupier lending is still growing, particularly to first time buyers. To me that suggests that fundamental demand is still strong, even though the investor segment and the market overall appears to be cooling.

It’s just not as bad as the headline data suggest.

The fear-clouds are gathering.

Soon it will be time to be greedy.

NO B.S. FRIDAY: Am I the first human to think this?

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Many people overestimate their intelligence

I think we can avoid a lot of trouble in life if we stop and ask ourselves, “Am I the first person to think this?”

Particularly if you’re on a break-away from the mainstream, thinking that you’ve discovered something that the herd just doesn’t see. Take a minute, sit down and ask yourself, “Am I the first person to think this?”

It’s funny how weeks have themes sometimes, hey. Well, this was a theme for me this week. I met a few people who have landed themselves in hot water and probably should have asked themselves this question before they gambled everything on a long-shot.

Let me give you some examples.

So think about someone who sold up their property in 2003/4, thinking that a crash just had to be around the corner.

Sure, it was possible to tell the story at the time, but if they had asked, “Am I the first person to think that this major asset class is about to go down in flames?” they might not have been so confident.

Because the answer, if they had been honest, would have been no. Not at all. At any point in time, there are decent chunks of the population who expect that housing/stocks/gold/whatever is about to collapse.

And how many of them turned out to be right? A staggeringly small percentage. Crashes do happen, but much less often than we actually imagine. And across time, the chances of being one of the doomsdayists, at the right time to be a doomsdayist, is actually very small.

We’re not good at balancing statistics in our minds, which is why we’re such terrible gamblers, and this is another example.

So if you’re thinking, yep, housing is about to crash, you’ve got to keep it in mind that you are not the first human to have this kind of thought, and at least statistically speaking, the chances of you being right are very, very small.

And if the chances of you being right are very, very small, then you shouldn’t gamble everything on your hunch. You shouldn’t sell your lovely terrace house in Surry Hills for example

What are some other examples I’ve seen recently?

“Money is a scam, therefore I’m throwing everything into Bitcoin.”

There’s another example. People have known money is a scam for centuries, but how many of them lived to see a currency actually collapse? Practically none. So tipping everything into Bitcoin is a wild gamble.

(I’m still a fan of Bitcoin, but I’m not putting 100% of my wealth there. No way.)

Another variation on that is
“The stock market is one giant bubble. I’m putting everything I have into gold.”

Literally, thousands of people have lost fortunes on that gamble over the years.

Or what about,
“Civilisation is about to collapse. I’m retreating to a bunker in the hills.”

That one is very common too. Many humans have had that thought over the years. And many humans have had to wander out of the forest as they approached retirement age and they realised that they were getting too old to live off possum meat.

Now I’m not saying that everything’s rosy and will always be rosy. I’m just pointing to this tendency we have to overestimate our ability to pick massive shifts in the human story.

And if we’d stopped to think about it – If we had asked ourselves ‘Am I the first human to think this’, we would have realised that a great many humans had had very similar ideas in the past.

And when we looked at what had happened to them, we would have realised that the majority were proven to be wrong.

And that should have given us a moment of reflection. Hmmm. Maybe selling everything to buy canned food isn’t the right strategy here.

So today I’m asking humanity to check themselves and not overestimate their intelligence

… because I like banging my head against walls.

Negative Gearing Reform – HUGE Possibility

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New Zealand leads the way

Bit of news from across the pond. Looks like New Zealand’s new Labour government is setting the stage to remove negative gearing, by ring-fencing losses on residential property so they can’t be offset against salary income.

An Issues Paper has been released by the Inland Revenue Department on the proposal to change the rules in what the Government says is “an effort to level the playing field between speculators and investors – and home buyers”.

IRD is proposing that the new rules will apply from the 2019-20 tax year and will mean that investors will no longer be able to offset losses on property investments against their other income. It’s not definite yet that the new rules will be applied in entirety from April 1 next year as the IRD says it would be possible to phase the rules in over a two or three year period (by gradually reducing the amount of losses that can be applied against other income). However, the IRD appears to favour applying the rules in entirety from next year.

Revenue Minister Stuart Nash, in “encouraging feedback” on the proposed changes, says the “persistent tax losses” that many property investors declare on their investments indicate that they rely on capital gains to make a profit..

The changes will “make the tax system fairer” Nash says…

“In conjunction with the recently announced extension to the bright-line test, ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers. The time is right to test the detail of this proposal with investors and other stakeholders,” Nash says…

IRD is suggesting that the ring-fencing should apply on a “portfolio basis”, which means that investors would be able to offset losses from one rental property against rental income from other properties – calculating their overall profit or loss across their portfolio.

Also under the suggested changes, a person’s ring-fenced residential rental or other losses from one year could be offset against their residential rental income from future years (from any property) and their taxable income on the sale of any residential land.

I think this is all pretty interesting. For me, if New Zealand pulls the trigger first, you can pretty much lock it in that Australia will go at some point. The same way that Trump’s tax cuts breathed life into the prospect of tax cuts in Australia.

It’s working at the collective consciousness level.

And I actually don’t mind some of the proposed changes. The idea of a portfolio basis – where loses in one property can be offset against income from another – is a great idea. It’s about recognising that property investors are running a business, and treating all their activities that way.

But I didn’t know what the ‘bright line test’ was. I had to look it up:

The bright line test – which requires tax to be paid on any gains made from a residential property sale – was first imposed by the National-led Government in 2015.

The Labour-led Government has argued the measures don’t go far enough and that extending the test to five years will help deter property speculators and “may” have of a dampening effect on the housing market.

National opposed the changes, despite it being a bill that “in the normal course of events, we very much would have been supporting,”.

“But we cannot support this bill because of the egregious, and I think in fact duplicitous, way in which a stealth capital gains tax is being imposed on New Zealanders through this legislation.”

So the gain you make on any property you sell within 5 years is added to your personal income and taxed. And that’s new because NZ doesn’t have capital gains tax…

(Why aren’t their prices higher?)

But seriously, 5 years is a pretty long time in property investment. I don’t think you’re just going to deter ‘speculators’ and ‘property flippers’ with that. You’re deterring everyone.

It’s that old narrative again. That everyone investing in property is just flipping and speculating and getting something for nothing.

I guess unless you’ve actually owned an investment property, you don’t realise how much work is involved.

It’s not nothing. And there’s risks too. You could get a bad tenant. Or no tenant. As an investor, you’re wearing that risk.

So I’m a little tired of this narrative that all investors are speculators and gamblers. That we’ve got nothing to offer the world.

Give us a break.

But I just don’t know how we’re going to shift it.

JG

Your apartment – now with a McHappy toy!

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What is McDonald’s up to?

What’s a company’s most valuable asset?

Take McDonald’s for example. What’s their most valuable asset?

It’s people, right? That’s the conventional wisdom.

Actually, not even close. People barely make the top ten. They’re down there somewhere with photocopying equipment and toner.

McDonald’s most valuable asset is real estate.

Think about it. How much real estate does McDonalds occupy? In prime locations across the country. It must be like hectares and hectares worth.

And all that land must be worth a small fortune.

I often think about it when I drive past these places. Like, how much business do they actually do?

It wouldn’t surprise me if the fast-food restaurants were just revenue-neutral place holders for a massive real estate empire.

McDonald’s is a real estate company with a fast-food arm.

I think the same thing about op-shops. It’s a patient but profitable business model. Buy shop-fronts in out of the way locations, wait for the areas to develop, sell the real estate on.

All the while sourcing your products by donation and your staff from volunteers.

Seriously, those guys must be killing it… over the long run.

I don’t know any of that for sure. It’s just what I see looking at those businesses through the real estate paradigm I live in.

But then there’s this news the other day. McDonalds is doing a joint venture with Stockland to develop an apartment complex in Western Sydney.

From Property Observer:

The biggest name in fast food, McDonald's, has moved into apartment development in western Sydney's Parramatta, teaming with developer Stockland.

The project is at its Parramatta restaurant site at 355-375 Church Street.

Some 350 apartments are proposed along with 1565 square metres of new retail space, a car park and the new restaurant.

The fast food group will retain ownership of the restaurant stratum lot, which is proposed to have two levels of seating, a PlayPlace, McCafe and a dual-lane drive thru.

McDonald's senior development director Josh Bannister noted this was the group's first mixed-use development.

They do not have any other plans at this stage, but the company has been looking at value-adding its property portfolio with residential components elsewhere in Sydney.

The proposed apartments will include one to three bedrooms, with views across the Parramatta Park, Parramatta River and towards the Blue Mountains.

Nice. Keep the restaurant, build a 350-apartment complex on top, roll around in jello-pits of money.

And “they don’t have any further plans at this stage…” Sure they don’t. Come on. You telling me this wasn’t the business model from the beginning?

Even if we take that at face value, you can bet this won’t be the last time they do something like this. They’re going to make a tonne of money out of this deal… for what? Effectively selling the air-space above their restaurant.

Space they weren’t using anyway!

If it’s one thing I know for sure in life it’s that patient money loves real estate. Economies change, industries grow and die, cities evolve, gentrify and decay.

But through it all, there’s real estate. Whatever is going on, on a long enough horizon, real estate makes money.

The only time it doesn’t is when civilisations themselves collapse.

But in that environment, nobody is making money.

Patient money loves real estate because that’s where the value is. Over the long run, nothing else comes close.

With those of use with shorter life-spans than McDonalds and St Vincent De Paul, we’ve got to roll with the cycles in the market.

But it’s the same dynamic that drives value for us. Land is worth more over time because they’ve stopped making any more of it.

(… apart from those garbage islands in the South China Sea).

You want to play like patient, inter-generational money?

It’s property all the way.

The doomsday artist that made me millions (Now he’s totally wrong)

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Harry Dent is back. Who would have believed it?
This guy made me millions, now he’s got it totally wrong!

I'm going to let you in on how the doomsday PR game works.

But before I do that Harry made me millions: Back in 1995 I read his book called the ‘The Great Boom Ahead'. It sent a rocket up my backside and motivated me to get into real estate in a big way.

Back then he was predicting an almighty boom.

He got it absolutely spot-on. I invested in real estate in a big way and now I'm a multimillionaire. So I'm a Harry dent fanboy from way back.

So the fact that I can give you an objective opinion is based on a 20 year love affair. I'm not a hater, I just think he's now got it wrong, and being in the marketing game I think he's been managed by a PR department that has sold him on bad-news sells.

*Sidenote: You've really got to be careful as to who you take advice from. I know several people who absolutely hate Harry with a passion. Why? They subscribed to his thinking and narrative in 2011-12, bought into the ‘The Great Crash Ahead' and they sold all their real estate in Sydney, literally costing them millions of dollars in future profits – Ouch!

Now to the crux of the matter and how the doomsday market works.

Some people look at me a little sceptically when I say that the media is just a circus, and everyone is pushing a barrow.

“But Jon, you've got a property portfolio worth millions. You've got a barrow too.”

And sure. That's true. And I'm probably biased to property in ways that I don't even realise. But I'm not out there pissing on punters and telling them that it's raining.

Like Harry Dent is.

Who is Harry Dent?

He's an American ‘economist'. He's toured here a few times.

In 2011, he came and said Australian house prices were about to fall 50%.

In 2014, he came and said that Australian house prices were about to fall 60%, and that people should sell up.

In case you're new to the planet, those predictions never quite came true.

In fact, since 2014, house prices are up 46%, so that makes his prediction about 100% wrong.

Hellava track record.

But that's not stopping him. He's back, touting another book on another road show.

What's more, he's shamelessly glossing over his track record.

From his publicist:

“Mainstream media pundits are calling me crazy, an idiot, and a quack.

“But that’s nothing new…

“After all, I’ve been making predictions that people are sceptical of for decades… but one after another keeps coming true anyway!”

One after another? Seriously? I can think of two calls that were so far off the mark they weren’t ‘wide’, they were out of bounds on the full.

And if people had listened to you and sold up in 2014, they would have lost out on hundreds of thousands of dollars.

But this is the thing about the game – it doesn’t matter.

In a world where facts matter and truth rules, an analyst whose predictions were consistently in the wrong post-code would find themselves out of a job.

No one would care what Harry had to say.

But this isn’t the world we live in. We live in a world of hype and whatever sells.

In that world, the Harry Dents do well. It doesn’t matter how wrong they are. The only thing that matters is how ‘wow’ they are.

And predictions of a 60% fall in house prices is pretty wow.

And so what’s to stop economists like Dent making sensational and sensationally bad calls?

Nothing.

There’s no downside. The only thing that matters is what kind of media splash he gets.

Now, I’ve read Harry’s work. Mostly, it’s pretty good he knows his stuff. If you want a good introduction into how all the pieces of the global economic order fit together, this is as good a starting point as any.

And I’m not going to begrudge Harry for playing the game. He knows how the game works. He knows that if he came all the way to Australia and said that house prices might fall 2-3%, no ones going to listen to him.

And so he’s doing what he needs to do, to be the entertainer that he is.

And I don’t even hate the game all that much. It’s mostly entertaining, and if you can see through the fluff, it can give you a read on where trends are going.

But make no mistake. It’s a game.

If it’s not a game, how does an economist with two 100% wrong calls under his belt get taken seriously?

It’s a game. The media is full of hype and trouble and sensation.

If you don’t know this as a starting point, then you’re any one’s fool.