Rich people love owning property.
They know they literally do not have to lift a finger (or spend a dime) and the value of that land will increase.
They know their mates in the government will unfairly tax the majority (poor people) and with all that tax money they will improve infrastructure and amenity in the local area. All these improvements mean an improved value of their land.
I think it’s important for me to point out that there will always be an impending boom on land because of this very point.
It is because land is one of the things that throughout thousands of years has actually a practical value. It probably started when we emerged from the forests and figured out farming 10,000 years ago. Since that time land has always held the most value.
The only argument is gold……which is found on land.
As a species we defend it, we kill others for it and we start wars over it. There will always be an impending demand for land.
It is important to understand this because when we improve infrastructure we are improving the value of the land.
Infrastructure spending provides stimulus
Right now, it’s April 2020. We’re right in the middle of this Covid 19 pandemic. It’s universally agreed by now that the world economy will enter a recession. In a time of recession or downturns governments try a few things.
The last decade we have been using the word stimulus a lot. Traditionally a part of stimulus is governments announcing big infrastructure projects to keep people employed and the economy rolling.
In the GFC infrastructure stimulus was pink bats and building our schools. We have not seen this sort of stuff just yet. Right now, we are just throwing money at people’s faces whilst yelling out “PROBLEM SOLVED”.
When we gather ourselves the infrastructure spending will undoubtably start. It is very hard to provide “the right” amount of spending for things like infrastructure and rightly governments will spend more that what they need.
When it works too well and unemployment reduces too low it creates job shortages. This creates rising income as employers compete for workers. Rising income means people can borrow more and we all know that when people can borrow more they will spend more on property.
Infrastructure attracts high income earners
Government spending on infrastructure also attracts skilled workers. Helping to build things such as universities, hospitals, tunnels and railroads means that more highly skilled workers will move into areas where the infrastructure is built. For example, health professionals such as doctors would often live close to the city because that’s where the most hospitals are.
The investment in infrastructure provides more value to society and therefor the land around it becomes more valuable. The higher income earners have the capacity to pay more and they will.
Let’s have a look at what’s already coming
Record infrastructure spending
I want to create a bit of perspective first.
When the NBN was first announced in 2007 (or maybe 2008…I can’t remember) it was announced with a $40 billion price tag. At the time this was the biggest infrastructure project in Australian history.
In the next 10 years Victoria alone has already announced an extra $100 Billion in projects. This sort of record spending is also in the pipeline for NSW and Queensland as well.
Add this to the probability that the Federal Government will throw a shit ton more money as a stimulus response to Covid-19 and it is easy to see how we are going to have a job shortage. The job shortage will drive wages increases which will end in higher property prices.
This may be opposite to everything you are thinking right now. I know if you turn on the news it will be doom and gloom and talk of mass unemployment. But just be aware that spring follows winter every year, this is why they are called cycles.
It’s easy to feel dejected when we turn the news on a believe these unseen times will change the world. Don’t get me wrong, I agree things will change but if you put an economic lens on things it is actually quite normal. Stimulus spending will help us through the trough and will give birth to more prosperity and a higher housing market.
The record infrastructure spending is one of the core factors that has led me to this belief that the we are going to have an unrivaled boom of the like history hasn’t seen.
Time will tell.
Take a look at the previous articles in this series