One thing
is for sure.
When it
comes to
property it
is all about
supply and
demand.
Paul Clitheroe isMoney’schairman and chief
commentator. He is also chairman of the Australian
government’s Financial Literacy Board and a best-
selling author.by2055.Thatis16millionmoreofusinjust38years.
Both Sydney and Melbourne will have a population
of over 8 million.
That is the demand side of property. On the supply
side there are no easy solutions. We live in a large,
arid country with not a lot of land for housing where
wehavewater,arableland,infrastructureandall
the necessities of modern life. So when it comes to a
potential property price collapse, I am not silly. Such
collapseshavehappenedbeforeandwillhappen
again. Mortgage rates hit 18.75% in early 1990. Pret-
ty obviously housing prices collapsed. If you were
forced to sell it was a disaster. But as usual in a major
pricedownturn,thevastmajorityofussoldourcars
andcutspendingtokeepourhomes.Andwithina
fewyearsinterestratesfellsteadilyandthemarket
recovered, mainly because of population growth.
So I am not an advocate for the never-ending
boom. That always has been nonsense and will be in
thefuture.Wemaygetaglobalshock,unexpectedly
strongrisesininterestrates,oroureconomyhitsa
recession and unemployment spikes. Any of these
will drive values down. But those who buy today
andsurviveamarketshakeoutwillbethelong-term
beneficiaries of the obvious – namely, population
growth and continuing growth in the overall wealth
of our population.
If,asinthe12thand14thcenturies,over50%of
usdieduetosomethingterriblesuchasthebubonic
plague, then property will be a truly horrible invest-
ment. A shrinking population will rapidly destroy
demand.Priceswouldfallandremainsountilthe
populationregrows,whichcouldtakeacoupleof
generations. Mind you, we could also be hit by an
asteroid and that would not be good either, though
it would sort out the housing affordability issue.
According to the world population clock, the
global population is 7,495,212,966 – let’s just call
it7.5billion.Itwillgrowbyover90millionthis
year alone. In 2050 it is predicted that we will have
around9.7billionlivingonourplanet,anincreaseof
2.2billion,anditseemstomethattheywillallhave
a not unreasonable expectation of somewhere to live.
While I am sure we will have property slowdowns,
times of falling prices and maybe even a bust, it is
difficultformetoseepricesnotincreasingoverthe
long term as the population grows. The real trick, of
course, is not to be a forced seller when the inevitable
tougher times come.
Next month I’ll take a big-picture look at housing
affordability. There are some solutions that will
assist but not fix the issue without resorting to
bubonic plague or asteroids, but current property
owners are not going to like them. It is seriously
hard to make property more affordable without
destroying the value of property already owned by
millions of us.