April 2026
(Based on a Redwood Dinner)
“The best investment on Earth is earth. Buy land, they’re not making it anymore.”
– Louis Glickman, Real Estate Investor
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. Don’t wait to buy real estate. Buy real estate and wait.”
– Robert G. Allen, Real Estate Investor
Property is one of these fields where everyone thinks they understand it but in reality very few people do. There’s a lot of misconceptions about how it all works, things that are popular opinions but are actually wrong. Things that are unknown unknowns that have an outsized impact. I’ve written about property before a few times here and here but this time I wanted to write about counterintuitive or unexpected aspects of property that are difficult to understand but equally important and effect a lot of how it works.
Property VS Business
There’s a common rhetoric you hear about property versus business where people advocate that property is a dumb asset class and business is a smart asset class. That the only path to wealth is to start businesses not to buy real estate. What I think they’re actually talking about is extreme wealth and not just security. But let’s overlay something onto this which is risk. It is true that if the goal is extreme wealth, it is much easier to do this via owning a business than you can via owning real estate. In fact I’d go so far as to say it’s almost impossible to create extreme amounts of wealth by investing in real estate alone. The people who’ve achieved this are very rare.
But what I think isn’t considered is risk. When it comes to investing in real estate, 90% of the people who invest will make money in the long run but in business 90% of the people who invest in business will lose money in the long run. This is because 90% of properties increase in value while 90% of businesses fail. So if you’re going to think about downside, you’d always pick real estate over a business even if your potential for upside is much less.
I think this is why on a societal level we advocate for people to generally buy a house before we tell them to start a startup. They’re just way more likely to succeed that way and set themselves up for a good life, instead of the other way where they might spend years at a startup or business that fails. I generally believe in minimising downside before trying to maximise upside and so if you have a low risk tolerance, you want to always invest your funds into property before business. But if you have a high risk tolerance then you want to invest your funds in a business before buying a property.
What’s important to appreciate about this advice is not the facts of the asset class itself but the risk tolerance of the person giving the advice. It’s also important to calibrate your own risk tolerance to your personality. If you’re a high risk taking person you’ll probably do better starting a business before buying a house. But if you’re a low risk taking person you’ll almost always do better buying a house before a business. The question isn’t about the asset class, it’s about how you think about risk. Both actually work but it depends more on you than the asset itself.
Where Does the Return Come From?
Let’s use some simple but generous numbers here. Property as an asset class in Australia generally grows at an average rate of 5% per year. The stock market generally grows at an average rate of 10% per year. You might conclude there that you get double the return from investing in stocks than property and you would be correct in this line of thinking. But what you’re not thinking about is the gearing and volatility. Gearing means borrowed money. Volatility means that the value of an asset goes up and down a lot in a short period of time and is a representation of risk.
Property is the least volatile asset while shares and businesses are the most volatile. Assets that have high volatility require better timing to enter and exit to generate exceptional returns but generally produce a higher return over the long term while low volatility assets require less timing, you just buy and hold, but will produce a lower overall returns. The more volatility represents more risk and we know that higher risk usually equals higher returns. Australian property has a volatility of 10% while Australian shares have a volatility of 20%, this means the asset can move up or down 10% in a year for property and the asset can move up or down 20% in a year for shares.
How the growth works in property is that there are long flat periods that last years followed by short sharp growth periods that over long periods of time normalise to a graph that looks like a staircase climbing upwards. How the growth works in shares and business is that there are big swings up and down in a given year that over long periods of times normalise to a slow linear upwards trajectory which if you graph it looks like a diagonal squigly line moving upwards.
But then why do people generally make more money from property than from shares if shares grow at nearly twice the rate of property? The reason is because property is a geared asset class where the magnitude of returns come not strictly from the growth of the asset but because you buy it with mostly borrowed money. In the words of Stuart Wemyss, the return comes from the gearing not from the asset.
Whenever you buy anything that grows in value with borrowed money, most of your returns are coming from the gearing. When you borrow money to buy assets, the asset has to be safe because the risk comes from the borrowings not from the asset. You can only borrow and gear to a high rate to buy low volatility assets. This is why so often people who borrow to invest in shares can get wiped out completely because the volatility nullifies the amplification effect of the gearing.
People generally don’t understand how the growth works in property and where their returns actually come from. They buy something that stays flat for long periods of time and conclude they’ve bought a bad investment and they sell, only for it to suddenly start growing rapidly after they’ve gotten rid of it. The nature of the growth means that people who buy property should not transact frequently, the nature of the asset means you should buy and hold forever if you can. This means you need to think much more carefully before investing.
Housing Debt and Interest Rates Aren’t a Big Deal
To use some round numbers, the Australian housing market is worth $12 trillion dollars with about $3 trillion worth of debt against it. That means for all the media rhetoric about excessive indebtedness, the numbers are sobering and positive. Australia is operating on a loan to value (LVR) ratio of 25% where there is $4 of equity in the Australian housing market for every $1 of debt. You don’t have to be good at finance to know this is excellent.
Here’s some interesting context, the entire Australian share market, defined as the market cap of all the companies combined, is only $3 trillion dollars. So the property market is 4 times the size of the share market. Another way of saying that is that Australian housing is bigger than Australian business and the all of Australian business is equal to only the debt component of the property market. It is astronomically big and so big that I think people don’t realise just how big.
The housing market could drop by half and the loan to value ratio would still only be 50% which is still comfortable. Australian banks determine safe loan borrowings at an LVR of 80%, which is a percentage which if you cross you need to take lenders mortgage insurance (LMI) which is an arbitrary risk threshold that requires insurance. What this says is that there is so much equity in property in Australia that makes the market resilient to price falls because people aren’t forced into selling because of how much debt they have.
This is the proof for why actually Australia is not an indebted country at all and the popular media narrative is all wrong. We’ve now stumbled on several things where the popularly held view is incorrect. What is the problem is not the overall debt to equity levels, it’s the distribution of it in who owns the debt and equity and where it is.
There are 2 types of home buyers in Australia, first home buyers which need to borrow money to transact and existing home owners who do not need to borrow lots of money to transact. Most of that $1 of debt is owned by first home buyers or people who own multiple properties and most of that $4 of equity is owned by people who have low amounts of debt.
The people who own the equity are generally the people who also own the housing wealth because equity is wealth. It is primarily older people who bought a long time ago that own all this wealth and as the joke goes, the best time to buy is a decade ago, the second best time is right now. Interest rates by definition don’t effect you if you have no debt and 75% of the housing market has no debt against it.
So when people think about interest rates effecting housing, they usually think of it affecting all of housing but it isn’t like that. It only effects the 25% of the housing market that has debt against it. If there’s no debt, interest rates don’t do anything. What this means is that a very large part of the housing market is transacting completely in cash or with minimal amounts of debt. This is why auctions can get so crazy and buyers can emotionally overpay. It’s because the amount of debt they’re actually buying a house with is minimal, Australia as a nation via the housing market is extremely cashed up and it underpins the spending and balance sheet of the nation.
The worst place to be in this market is a first home buyer and previous generations have seen this issue creep up and they try to solve it by helping their kids with early inheritances. This is how the bank of mum and dad in aggregate is the 5th largest lender in the country. The first home buyers are interest rate sensitive and also are competing against people with low debt. This is a difficult place to be and why first home buyers can feel completely hopeless.
Interest rates not influencing housing costs is probably the largest elephant in the room. It’s probably the most commonly held view that increasing interest rates increases the repayments of borrowers which then reduces their borrowing power and lowers house prices. The inverse of this being when you lower interest rates, you lower repayments and increase borrowing power. This is as good as gospel.
The reason people believe this is because interest rates were at 17% in the 1990s when housing costs were cheap then interest rates dropped to 5% over a period of decades and house prices increased considerably. We then infer that the cause of house price movement is attributable to the interest rates. It’s a compelling explanation through time but it isn’t true. It’s more akin to a tailwind than a tidal wave in the inflating of high house prices.
What also happened in that time that doesn’t show up so clearly in the data is that our populations in the inner suburbs exploded and we didn’t make anymore land. But also that the houses we live in basically doubled and tripled in size and the statistics don’t show the size inflation. A 200sqm house or a 500sqm house both show up as 1 house even though the latter costs more than twice as much to build and buy as the former.
Now I’ll show you why this is effect is overblown. It’s because of how property is transacted that makes all the difference. We covered in the above section that Australian property has $4 of equity for every $1 of debt. So when interest rates move it only effects the people who own that $1 of debt and doesn’t effect at all the people who own that $4 of equity. If you have an instrument that only effects 1/4th of the market, by definition you are missing the majority. Ergo interest rates do not effect the majority of the housing market. I think we can expand this example now to explore how the majority of the market transacts with low amounts of debt.
Let’s use some simple examples. What this looks like in practice is you buy a house for $1 million dollars with $800k worth of debt for an LVR of 80% and spend a decade paying down the debt to $500k. In that time the house grows in value from $1m to $2m. When you sell the house for $2m, it clears the $500k worth of debt and now you have $1.5m worth of cash. You then go and buy a bigger house for $3m and you put the entire $1.5m cash from the sale of your last house as the deposit and borrow $1.5m debt to buy it at an LVR of 50%.
You then spend a decade paying your debt down from $1.5m to $1m while the $3m house you just bought grows in value to $4m. When you go to sell, it clears your $1m of debt and you end up with $3m of cash. You now go and buy a $5m house, you put the $3m of cash as the deposit and you borrow $2m, an LVR of 40%. That house grows in value to $6m over another decade and when you sell it, it clears the $2m of debt and you have $4m of cash.
You’ve spent over 3 or 4 decades now from buying a $1m house to a $6m house, upgrading each time by about the same quantum of value. In this time simplistically, the house grows in value by the same quantum and the amount of debt in each decade that you pay down is roughly the same but your equity position looks very different. Even though the numbers are increasing, the amount of debt you have as a percentage is decreasing. The first time you bought your LVR was 80%, the second time you bought your LVR was 50%, the third time it was 40%.
You didn’t actually need as much borrowing power to buy the second house as you did to buy the first house. The third time this happens it goes even better and progressively over many decades you end up owning property with next to no debt against it. This is the process by which the equity becomes concentrated in the hands of older people who bought decades earlier and have little to no debt. But it means when a property is bought and sold, it is often bought with minimal amounts of debt.
Construction is a Low Margin Industry
Here’s something that really confuses people, construction is a low margin industry. They think that the numbers are so big that everyone must be making a fortune. They think a house might cost over a million dollars to build in Australia so someone must be making all the money. The reality is pretty far from there.
A good thought experiment to use is just to layer on the things in a house. A house is expensive materials + expensive labour + expensive land, if you put together 3 expensive things you end up with an expensive product and even though the price of it may be high, the people making it aren’t making much money because they have to pay for all the expensive items. When you add on that construction technology is constantly changing and you keep having to fill new houses with the newest technology to keep up with consumer preferences, you are always spending more.
I remember in Melbourne where a fire place was just a nice to have and not a default item you needed to include. A high end fireplace might cost $20,000. I also remember when you could get away with just building one kitchen, nowadays you also need to build a second butlers kitchen, the kitchen is the most expensive part of a house and now you need to build two of them per house instead of just one. Kids rooms used to be able to share a bathroom, nowadays as adult kids stay home longer you need to build each room with an ensuite and so on and so on. Because that’s what people want and are prepared to pay for.
In addition the technology is changing rapidly and individual components of a house are experiencing their own version of Moore’s Law with frontier research and development. Every single item from fridges to ovens to lights to switches to concrete is going through a technological progression that makes items more functional and useful but also more expensive. You never used to need integrated fridges or dishwashers, you would have free standing ones, now they are standard inclusions. External walls were rendered bricks which were cheap, now it’s concrete Hebel which are expensive. Stoves were made of steel with gas, now they’re induction made of glass, more expensive but a higher quality item.
I think windows and glass is the best example where it used to be single glazed, then double glazed, then double glazed with thermal seals and now just straight triple glazed. Eventually it’ll be triple glazed with thermal seals. God help us if we ever hit quadruple glazed glass. Each additional jump up the quality stack adds cost but makes glass and windows that are higher performing both in sound reduction and thermal properties. Additionally houses used to have few windows, now windows are all floor to ceiling and people want as many as will fit to maximise views and natural light. There are thousands of such examples but these are the ones that come front to my mind.
Once you run this process over the construction of a house you end up with a low margin product. To use an illuminating example, the nations largest home builder Metricon which builds 5,000 houses per year operates on a 2% profit margin. That means on a $1 million dollar build Metricon will earn $20,000 in profit after paying for all the trades and materials used to build it. That’s actually pretty standard as far as the industry goes. Even your luxury custom builders at a maximum are earning a 10% profit margin on construction.
Cost increases on a 2% profit margin, representing $20k on a $1m build price can come from anywhere. There could be a war in the world or a giant fire which increases the cost of timber, steel or plumbing pipes by 20% and if you had budgeted $100k for any of these items, there goes your entire profit margin for a reason that was completely out of your control. Anything that increases their costs even a little bit can eviscerate their profit margin. Especially on a fixed price contract which means the house will be delivered for X price no matter what. Any cost increases are worn by the builder.
This seems smart in theory but in practice can lead to disaster. This is actually why builders will walk off a lot of jobs if they don’t make money because they’re threading a needle very finely. Many clients hold builders to fixed price contracts and then are surprised when the builder rather than completing a loss making house just walks away from the job and ghosts you, leaving the customer holding a half finished home. The client then eats a larger loss as their house sits incomplete and the timber rots in the rain. I think there is an important lesson here about your suppliers being on the same team as you and treating them as such. A fixed price contract usually results in a cheaper build but with a lot of unseen risk built in, zero flexibility and a lot of exposure to macroeconomics.
One of the most common sources of cost escalations is actually just the client changing their mind on what they want. It goes like this, a client who is buying a house decides they want to change their tile colour or floor material or wants a different color window or wants to move a couple of walls around to change the space of a room. They don’t want some mass produced house, they want an individual identity to their house that they feel more connected to. But suddenly your whole supply chain that is buying those tiles by the thousands or building walls with precision is thrown out of whack and to change any of it costs a lot.
Personally I avaoid all of these issues by using another kind of contract, the cost plus contract because they give me unlimited flexibility. A cost plus contract gives the builder a fixed margin of say 5% – 10% and then they pass on all the underlying materials costs. So for example with a 10% cost plus contract you pay for all the materials and labour and then the builder adds 10% to everything. But allows you to change your mind on literally everything, which I happen to do a lot. Sometimes you only catch mistakes or come up with your best ideas when you’re already midway through a construction project.
This has happened to me many times where only once the spaces were physically built could I see what it needed, I couldn’t tell from the drawings alone. It’s sometimes as simple as we haven’t specced skylights for this kitchen or staircase but they would look really good here. To all the way to maybe this swimming pool actually shouldn’t go here, it should go in this other place. I’ve previously converted a study to an extra kitchen before and made that call on the fly. So a cost plus contract usually ends up with an overall more expensive build but with a lot less risk and a lot more flexibility. If you operate in the low end market, you generally want a fixed price contract, if you operate in the high end market, you generally want a cost plus contract.
If you say that a volume building company earns 2% profit margin and a custom luxuty building company earns 10% profit margin. By comparison banking experts say the average home loan generates a profit of 2% per year for the big 4 banks. So when a house is built the bank makes around the same profit as the construction company does per year. The more profitable part of the housing supply chain is development where the property developer takes the financial risk to develop the houses. A very good developer will generally earn on the high end a 25% profit margin on a project that will run for 3 years on average, so per year they might earn around 8% as a yearly profit margin on a development which compensates for the financial risk undertaken to do the project.
To make money on housing from the perspective of a property developer is an exercise in layering margin on margins. You might layer a 2% construction margin onto a 8% development margin onto a 5% land growth margin for a total return of around 15% per year and this is how you make extreme wealth as a property developer. Once you add on that majority of these amounts are upto 90% borrowed money with high amounts of gearing and your input costs can be as low as 10% of a project, your cash on cash returns can be exceptional. If you put in 10% of a project in cash and you get 15% per year by layering on margins, you are almost doubling your money every year.
But you’re taking on extraordinary amounts of risk and you can see this through the data where large quantities of property developers and builders go bankrupt each year. Even large successful ones as seen in the last few years when ProBuild and Porter Davis went under, 2 of the nations most successful developers and builders. Most people in the housing supply chain though are not developers and are not earning very much at all. But the people making money are making lots of money but that return is to offset all the risk they are taking. The risk is important to think about in the lens of housing because you often see very successful companies who’ve been making money for decades suddenly go bankrupt out of nowhere because the quantums of money and leverage used can be extraordinary.
These numbers are even worse in commercial property where the bankruptcy rate is even higher because commercial vacancies are longer and the buyer pool is smaller. The other reason is that commercial fit outs are not an asset while residential fit outs are an asset. So when a restaurant spend hundreds of thousands of dollars fitting it out, if the restaurant sells the new owner usually takes it all and throws it away and starts again. Whereas with the fit out for a house, the new owner usually leaves everything in exactly as they bought it. So every dollar invested in fitting out a commercial space is a dollar wasted but every dollar invested in fitting out a residential space is an asset and adds value.
If Investors Don’t Make Money, New Houses Won’t Get Built
Here’s something people don’t understand about development finance for the construction of new houses and new property developments. The bank doesn’t lend any money for the developer to construct a project until they achieve a certain number of presales to the public. The presales are the developer selling unbuilt houses and apartments to buyers, using pretty graphics and marketing, then uses the funds from the presales as well as a bank loan to build the houses and apartments.
The bank usually requires a developer to sell about half the number of houses in a project. This is a way for the bank to reduce the risk of a developer building a project and then having no buyers to sell it to after completion. If the developer can’t sell half the properties in a development then they can’t get the finance from the bank to build the houses and the development doesn’t happen at all. But the developer is still paying for all their costs for land and staff and interest on bank loans even though the project is basically dead in the water.
Every project basically starts this way, unless the developer is already very rich and can self finance, which most are not and they need bank loans to do any construction. This is a bit of a high risk game of chicken where the developer sort of has to figure out what their construction cost is and what their sales price is and what their profit margin is before they actually build it, usually years ahead of time. It’s all a game of balancing risk with cost with profit and is extremely delicate, if they’re off even by a little bit this can balloon into many millions of dollars worth of mistakes and can tip an otherwise safe project into bankruptcy quickly.
This risk is why developers earn the most in the supply chain of housing, they are absorbing all of the risk and underwrite every project with their own finances. If a project goes under, the developer is the one holding the bag in the end and will eat the majority of the losses. So what most developers do to get the presales is to sell the properties for as much as the market will bear but a little bit less than what they think it will be worth in a few years time once they’re built. This allows the investor or buyer to make some money in the time between buying the unbuilt house and actually getting the completed house.
But if those buyers don’t buy these presales then the developer can’t get the finance to do the development and then the project doesn’t happen. This reduces the amount of houses on the market since developers are the only ones supplying new houses to the market. We know that the supply of new houses is the only thing that puts downward pressure on property prices and rents and building a lot of housing is the only way to stop house prices from growing too quickly.
Let’s overlay this with another fact from Housing Australia. Only 1/3rd of all housing is for rent, the remaining 2/3rds are owner occupied. Owner occupied housing by definition is not available for rent. Of that 1/3rd of housing that is available to rent, 10% of it is available from a social housing provider like the government and the other 90% of the rentals are owned by private landlords. This is another way of saying that private investors provide 90% of all the rentals to the market and for every 3 new houses that are built, only 1 of them becomes a rental and puts downward pressure on rental prices.
So investors are responsible both for creating 1/3rd of the demand for new houses to be built and also for providing basically all the rentals. The only reason investors do that is to make money via property price growth and also cashflow rental yield. If they don’t make money supplying those rentals then they’ll stop doing so and you’ll reduce the number of rentals on the market. This is why investors are a key part of the housing picture and this means you want to incentivise investors to actually buy more houses, not less houses. Investors buying more houses is the only way to create the demand for developers to build more houses.
But then you end up with a complicated picture because each of those investors is also competing with a home buyer who intends to live there. But these two things work in opposition to each other. Let’s say there’s a house for sale. If you want cheaper home prices, you want the owner occupier to win. If you want cheaper rents, you want the investor to win. You can’t have both at the same time unless you make enough houses at the exact same time for both the 2 out of 3 owner occupiers as well as the 1 out of 3 investors to all buy. Usually not enough houses are built to satisfy all demand at the same time.
Governments though often focus on trying to help those 2/3rds of owner occupiers and do nothing to help those 1/3rd of landlords. In fact they often think of investors as a cash cow or golden goose that they can charge extra taxes to and extract rents from and will create ways of harming the investors. Not literal rents but rents in the economic sense of the word. But this is a mistake, the real thing the government should focus on is just to help build more houses and incentivise both investors and owner occupiers to buy more houses because both of them makeup the demand for developers to then build more housing.
But what that means is the government needs to create a system where all home owners make some money but that is the key to actually lowering both house prices and rents. That sounds bad because the government doesn’t like helping people make money but this unintuitively is the only way to create enough demand to get more houses built without straight up buying or building the new houses themselves. In an ideal world the government would be the largest landlord and developer of new properties, a system that places like Singapore have. But we are very far from that utopia in Australia and here we move the market at the edges to achieve the results we want.
Compound Growth Grows Quickly, Inner Suburbs Will Always be Expensive
Compound growth gets out of control quickly and it applies to houses. If something is worth $1m today and it is compound growing at let’s say just the inflation rate of 2% per year. The housing market compounds on average at 5% per year but let’s take a low inflation number to hit this point home because you can’t stop inflation but theoretically the housing market can stop growing completely. Unlikely but possible.
$1 million compounding at 2% per year for 50 years is $2.6 million, after 100 years it is $7.3 million. This means every single house you are seeing today that is worth $1 million, in 100 years will be worth $7.3 million and there’s nothing you can do about that. Compound inflation will do that to the value of the house and the value of money and it’s completely out of your control. If you do not buy the $1 million house, getting to $7.3 million in 100 years is inevitable and that’s the price your grandchildren will be paying.
But that’s at conservative growth rates, the final number might be even more crazy. If we take the average property price growth rate of 5% per year, in 50 years that same $1 million dollar house today will be worth $12 million dollars and in 100 years that same $1 million dollar house today will be worth $132 million dollars. These numbers are truly unfathomable but they are the mathematical reality of what’s happening and what you have to prepare for if you want to live in Australia. Fabulous if you’re on the train but anxiety inducing if you’re trying to get on the train.
Why this happens is because these are growth rates on big numbers. Wages might increase faster than this but on a quantum basis it still won’t keep up with the house price growth. $1 million growing per year at 2% is $20k per year worth of growth. Let’s say you earn a $100k a year salary that is growing at 10% per year, is only $10k per year. You are underwater and falling further and further behind every year even though your wages are growing faster than the house prices.
In this example your wages are growing at a generous 10% per year while the house is only growing at a miserly inflation rate of 2% per year. But the amount each year that the house grows buy is compounding away from you as your income is compounding to catch up to it. I’ve always imagined it as running to catch a train as it is accelerating away from you. But at some point in your lifetime, you have to get on the train because if you don’t get on the train, the train you want to be on accelerates too far away from you to ever get on it.
This is why you can almost never out earn your way ahead of the housing market and is the proof for why you generally always want to transact as early as you can and start riding the growth instead of chasing the growth. It will always compound away from you and you always want to get on that train if you can as early as possible. This doesn’t even factor in the rent growth if you live somewhere and are always paying rent.
This is actually why early inheritances and family pooling of wealth can be so powerful because it magnifies the effect of capital by deploying it earlier. $1 given today that lets you get on the train might be worth $10 in the future so you can effectively gift your future generations $10 in the future by giving them $1 today. There’s very little in this world that can amplify a gift like that. I think as a society this is a huge problem that we haven’t properly internalised or figured out how to address. What happens to society in Australia in 100 years as all the $1 million dollar houses today are worth $10 million or $100 million instead because of inflation or house price growth.
I have no idea but I think the solution is eventually the government will realise it has to enter the market itself as a construction company or developer and start building social housing en masse. It has to become one of the creators of the supply of housing to put downward pressure on house prices. There’s already the model for this and I’ve heard the best idea come from economist Cameron Murray. Although he seems to think there has never not been a housing shortage and housing crisis is actually the default mode of the housing market. So maybe this problem is an endemic one and there actually is no solution but personally I like this one the best.
One of the most efficient property developers in the country is actually Defence Housing Australia, a government body that develops housing for the armed forces. Their explicit task is to produce as much high quality housing at an affordable price as they can for the military and they’re very good at it. Instead of Defence Housing Australia, they could just be Housing Australia and broaden the mandate to instead of only developing for the military, they could build for everyone. That would be the best idea ever because it would also be a source of revenue for the government and asset building for the nation. It could for example be funded by Australia’s sovereign wealth fund the Future Fund, a fund that already invests in a lot of real estate.
Someone in government needs to do this because it would unlock a ton of value and both make new housing and also make money for the government. Something like this was created by Labour in the Housing Australia Future Fund but then a bunch of politicians in the Liberal opposition who don’t know anything blocked it which was unbelievably dumb and shortsighted. It’s sad when you see government find the right answer to solve a problem then it gets bogged down in politics. Sometimes I think politicians argue against good ideas just for the sake of arguing just to be oppositionally defiant instead of taking a stance on the merits of an idea itself.
The only way to fight this accelerating train effect is to move into less desirable locations that are further away and cheaper. Outer suburbs will always be cheaper while inner suburbs will always be more expensive. What changes is the definition of what is outer and what is inner. As technology changes and transportation is built and becomes faster, the distance of what is outer and inner change as the technology allows the distance to be traversed easier.
For example when you had to ride home on a horse, an outer suburb might be considered something 10 minutes away. When you are riding a high speed train, an outer suburb might be considered something 1 hour away. If you fight for housing in inner suburbs, you will always pay a fortune. Desirability and cost are interlinked. Houses will always be expensive where people want to live and houses will always be cheap where nobody wants to live.
Some of this is incentives are not aligned. Government has an incentive for housing to be expensive because they get more taxes from more expensive houses. Government also has an incentive for housing to be denser and not spread out because their infrastructure costs to connect faraway places is really high. Things like power and water and sewerage and roads and public transport is expensive to connect to outer suburbs whereas inner suburbs, which is the most expensive housing, is the cheapest to build infrastructure to.
This is why the government never wants to invest in large volumes of outer suburb low income housing, it always wants to invest in high quantities of expensive inner suburbs housing. Because the infrastructure cost to connect places further away is always more than connecting places closer in. This is why there are generally 3 tier property markets working simultaneously that are created. Outer suburb cheap housing, inner suburb expensive housing and cheaper high rise apartment housing. Citizens can then choose what they want to do and have complete agency over their lives and decisions.
As a second order effect of this, places that have low amounts of inner city land will always be more expensive than places that have high amounts of inner city land. This is why Sydney will probably always be more expensive than Melbourne, because there’s just a lot more land in Melbourne than Sydney. Sydney is trapped between an ocean and mountains whereas Melbourne just has ocean then nothing. So Melbourne can build outwards in a way that Sydney can’t.
After reading all of these you might be especially confused about how it all works. I suspect dear reader you have had many of your long held beliefs refuted or contradicted in their entirety and that’s not a nice feeling to have. But one of the patterns is that most of the long running media fueled beliefs are just plain wrong.
There is a followup essay to this one here.