Relentless innovation…
More efficient ways of doing things…
Eventually it brings costs down.
Take personal computers as just one example.
Back in the day, personal computers were only for the wealthy.
One of the first personal computers, the HP 3000, sold for $95,000 back in 1972. That’s roughly half a million dollars in today’s money!
Yet today, for a few hundred dollars you can buy a laptop with gob smacking capabilities.
That same innovation and technology is also being used to make housing more affordable for all.
We’ve heard so much about 3D printing in recent years. Well now it’s being applied to housing. And there’s great hopes it will bring down house prices.
3D printers could be the answer to affordable houses
This is not science fiction anymore. Companies are making and delivering 3D printed houses to the market place, now. Massive 3D printers are building entire four-room house frames in less than a day.
The Netherlands are leading the charge in this area. They’re building what’s touted as the world’s first commercial 3D-printed housing project.
Meanwhile, the US is not standing idle either. Last year, a company called New Story revealed they’re set to build 3D printed homes in Austin, Texas. The homes will cost less than US$13,000 to build.
Finally, we have the answer to affordable housing. It’s almost within our grasp.
Just as with personal computers, which got better and cheaper over time, housing too will become cheaper and better over time.
NOT!
Of course, I was just having a lend. A bit of fun.
But all jesting aside, here’s something this 3D-building tech will do.
It will keep land prices on the boil in the years ahead.
Personal computers became affordable over time because of competition. There’s always another company making laptops cheaper and better. This is why I don’t need to take out a 30-year loan to buy a laptop. This is Adam Smith’s ‘invisible hand’ in action.
But land fixed in supply around the infrastructure, amenities and services we all enjoy, will ultimately sell at the red line at what the economy and locational advantages afford. In other words, this is why most people do need to take out a 30-year loan to buy a little bit of it.
And as the price of land goes higher and higher (yes, if history is to repeat, they will go higher from here), people start to speculate in it.
Then you get to read about it and hear it in conversation, the killings everyone is making in property. Then the fear of missing out sets in, fueling a final speculative frenzy. Which finally sends the price of land right over the top.
Why do so few see this?
This is why the financial reforms put in place after the global financial crisis have only ensured a repeat of yet another boom/bust. That’s because 2008 wasn’t a ‘financial crisis’ in the first place. It’s a disgrace that few economists can tell you this! [openx slug=inpost]
Anyway, to recent events.
Bringing events closer to home, this Australian election both parties are touting income tax cuts and a large infrastructure spend.
Have a guess where those gains are likely to end up…
That’s why I can’t be completely bearish on Aussie property right now. Not like some people are. Those measures are likely to put a support under house prices. Let’s wait and see.
Tax cuts and wherever the infrastructure goes in, results in rising land values and rents.
I trust you can see this now.
If 2008 was talked about as a ‘land crisis’ and not a ‘financial crisis’, then people would start to ask ‘how do you take the speculative component out of land price?’
The answer to that is quite simple.
And is also the ‘real answer’ to making housing more affordable.
Only, it’s a question no one wants to hear the answer to. Most especially, those who control the levers of power.
So, it’s the same old…and here we go again…
Relentless innovation, a once in a generation infrastructure spend, tax cuts and so forth. It’s likely to bring in the biggest land frenzy of all time.
Find a seat and watch the movie unfold. It’s going to be exciting to watch. Only, we know how this movie ends.
I’m not trying to push a barrow, nor am I out to change the system.
But more to show you how the system works. Because understanding all this will make you a better investor.
Innovation, or improvements of almost any kind, only lead to higher land price and rents. The gains only go to those that ‘already own’.
That’s why as part of an overall wealth strategy, you could consider owning some. Even if only to buy your own home.
Renter or rentier. You get to choose which side of the fence you’re on.
Your takeaway…
Everyone believes that the Global Financial Crisis was purely financial in nature. It wasn’t.
At root, it was caused by speculation in land price. The loose financial lending (created on a rising land price) simply added fuel to the fire.
Nothing has really changed. The underlying cause of the cycle goes unchanged. Which means we are setting up for another repeat of the real estate cycle.
And it’s this repeating cycle which ultimately drives the economy, stocks and almost everything else.
If you do not understand this cycle, then you are blind to the risks and opportunities that lie ahead.
They say it can’t be done, but you can broadly know what’s coming next for the economy.
It really could give you an incredible advantage over other investors. Not only in property, but in the stock market as well.
Regards,
Terence Duffy