Housing isn’t the concept that we thought it was… have you caught up?
What is a house?
If like most people you said something like, “a place where people live”, then you’d be right, but you’re missing a big part of the story.
Even if you put on your investor hat and said, “a place where people live, that you can also own and earn a rental income from,” again, you’d be technically right. Full marks from Investopedia for you.
But again, this is only part of the story.
Housing, as a concept, is changing.
And if you’re not watching this space, then you’re going to miss the biggest opportunities on offer over the next twenty years.
For a long while, you’re “a place where people live” definition would have served you well. Up until about the late 1980s, that was pretty much right.
But then ordinary Australians started cottoning on to the investment potential in property. They realised that housing was a place where people lived, but it was also something you could invest in.
The game changed, and a big part of the story behind the ongoing boom we’re living through is that more and more people are making property part of their portfolio.
But now the game is changing again.
Some of those changes are easy to identify.
Take the evolution of AirBnB for example. That has surged in recent years, and it’s a whole new way of thinking about housing.
Now a house is somewhere that people live, that can be invested in, and can give you access to the Tourism dollar if you fancy being a hotelier.
The latest stats show there are 115,000 listings on Air BnB right now.
And a study from the University of New South Wales shows that in Sydney, 60% of Sydney’s 20,000 listings are for entire homes.
That means there are 12,000 homes in Sydney, that used to just be a place where people lived, but are now a sort of quasi-hotel.
And if we extend Sydney’s experience around the country, that means we’re talking about something like 60,0000 to 70,000 homes, across the country, now dedicated solely to the short-term accommodation market.
This is a real shift.
I mean, we’re talking about almost a full year’s worth of housing supply, just never making it to market. That’s got to have an impact on prices.
Or take the way housing has become a ‘store of wealth’ for rich globalists.
Rich people (even aspiring rich people!) from China to the US, from the UK to Russia, are looking to Australian property, not because it earns an investment return, but because it gives them a way of storing their wealth…
(… and possibly hiding it from the authorities back home.)
There were almost a million empty homes on Census night. We don’t know how many are due to investors deciding that they’re better off leaving their investment empty, but we hear stories of entire apartment blocks in inner-city Melbourne and Sydney being used for just this purpose.
Again, this has got to have an impact on the market.
And again, we need a new framework for thinking about housing. This isn’t just “a place to live” or a place to invest in.
This is something different.
So what is it?
This is important. The people who made money in the early days of the internet were the ones who saw what the paradigm shift was really about. It wasn’t just a way to connect a bunch of boffins at elite universities.
(It was an unprecedented vehicle for porn!)
Same story with the blockchain technologies. The ones to make money will be the ones who see the full promise of the technology on offer – a promise that may take years to realise.
So how should we think about housing?
Well, at the risk of drifting off into abstract space, I would say this:
Property is the gateway between the real and the unreal worlds.
I don’t mean that if you set up your Ouija board in the right way, property becomes a portal for communicating with the dead.
I mean that there are fundamentally two types of economic activity. There’s real world activity – making cars, growing fruit, building stuff. And there’s unreal economic activity – writing blogs, marketing, mining for bitcoins.
No one is any better than the other, but at some point, all economic activity needs to be made real. We work so that we can ultimately buy real things – food, housing, clothing etc. You can’t live on blogs.
And while you can have a real economy without any unreal elements, you can’t have an unreal economy without any real elements.
So the unreal rests upon the real.
Property – and land in particular – are unique then because all real activity must be grounded in the earth. The minerals that make up your IPhone have to come from somewhere. Your factory has to be located somewhere. Your zucchinis have to be grown somewhere.
And so property is the place where all the unreal economic activity – the vast billions and billions of dollars that rush about producing nothing anyone can touch or see – it is the place where all this activity grounds.
It’s the way that lightning needs to ground to exist. A lot like that.
The great colossus of human economy must at some point pass through the gates of property.
And the bigger the economy becomes, the bigger those gates have to be. The more value they hold.
And so as our economies continue to expand rapidly, and as the balance continues to shift from the real to unreal, as it has done for the past 50 years, the relative value of property increases.
And so we digitised hotels – that revolution grounds out in property values. We digitalised taxi’s. Now everyday parking spaces are factor of production.
China produces a thousand billionaires. They want to ground their wealth into something real before it is taken away from them.
So this is what I’m suggesting. Over the long, long run, I’m thinking about property this way – it is the gateway between the unreal and the real worlds.
No modern economy can do with out it.
And once you have that level of necessity, its potential long run value becomes limitless.
What’s your framework for thinking about property?
