I had a gentleman write to me last week asking if he should buy his first investment property or wait until mid-2024 when apparently the market is going to crash, and everyone defaults on their loans.
There is not a single piece of data out there that supports that forecast. It’s like Deja vu from the GFC and Covid.
So many people get bogged down in the noise of the 24/7 news cycle and the forecasts of doom and gloom from commentators who don’t really understand the market, that they miss the big picture.
The big picture in Australia right now is this:
Australia has a 100,000 shortage of houses. At the same time, 40,000 people are moving here from overseas every month.
To accommodate these new arrivals, we need to be building 20,000 houses each month, but we are only building between 10,000 and 15,000 houses each month.
That might not sound like we’re far off, but it means we will be at least 160,000 houses short by this time next year.
Having a roof over our head is our most basic human need; and people will cut back on almost everything else before they give that up.
Owners will do anything to hold onto their property despite rising interest rates, as in many locations the rental market is not a viable option, rents are high and vacancy rates are low.
The Government is working hard to streamline the process of building new housing. The Queensland Government just last week doubled its first home buyers grant to $30,000.
Even so, it is not easy to build as builders are competing with Government infrastructure projects for labour and supplies.
Mum and dad investors – who own one third of all Australian housing – are finding it hard to get loans because the interest rates have increased 4.25 per cent in 18 months, and you must service at a 3 per cent buffer to qualify for a loan.
It’s a crisis and there isn’t a perfect answer. We need people to move here to help bolster our workforce and the housing crisis is the necessary fallout to that.
As in every crisis, there is always an opportunity, and that opportunity today is in owning land.
A rising tide catches all boats.
Affordability is a challenge, sure, but the solution on that front is density.
We are on the cusp of potentially the biggest surge in land prices we have ever seen. And that’s no small claim given the price of land in Australia has gone from $16 per m2 in 1986 to more than $1,000 per m2 in 2023. An increase of 11.85 per cent compounding over 27 years!
The average size of a block of land has gone from 1,000m2 in the 1980’s to 375m2 today. I think the average size of a block of land will be 200m2 within this decade.
Owning land in capital cities has been and remains the safest and surest bet when it comes to growing wealth.
You can’t just own land obviously; we need cash flow to help us leverage and pay for the cost of holding the land so that means it needs a building on it.
The rental market is as stretched as it’s ever been.
The vacancy rate in Australia is 1 per cent – well below the 2.5 per cent that would constitute a ‘balanced market’ for landlords and tenants.
As a result, rents are increasing by 0.7 per cent each month.
It’s worse in the smaller capital cities; Brisbane has a 0.9 per cent vacancy rate, Adelaide and Perth are critically low at 0.4 per cent. There markets are seeing rents increase by 1 per cent to 1.5 per cent each month (12 per cent to 18 per cent annually).
House prices and rents are increasing by 10 per cent per annum right now and it’s hard to see how that will change over the next few years.
If you can afford to buy a home today, or an investment property, do it.
We should be telling anyone who we care about to do the same.
I am yet to meet someone who told me they wish they did less when it comes to investing. I don’t have enough hands to count the people who’ve confided in me they wish they did more.
Menu
