The land takes society’s economic and social gains. It’s why you still have to work as many hours as your mum and dad did. Or your grandparents for that matter.
This economic fact isn’t so widely appreciated. But it’s been known for a long time.
Here’s part of a speech Winston Churchill gave back in 1909 to illustrate the point. After that, I’ll show you why it’s important that you have to understand it today.
Churchill’s 1909 speech was addressed to the House of Commons. It’s his story of the ‘toll bridge’.
“Some years ago in London there was a toll bar on a bridge across the
Thames, and all the working people who lived on the south side of the
river had to pay a daily toll of one penny for going and returning from
their work.
The spectacle of these poor people thus mulcted of so large a
proportion of their earnings offended the public conscience, and
agitation was set on foot, municipal authorities were roused, and at the
cost of the taxpayers, the bridge was freed and the toll removed.
All those people who used the bridge were saved sixpence a week, but
within a very short time rents on the south side of the river were found
to have risen about sixpence a week, or the amount of the toll which
had been remitted!”
On 4 June Australia’s government announced a new $25,000 Homebuyers’ grant. It’s a grant that complements existing state and territory schemes. It’s designed to make housing more affordable for first time buyers.
The new Homebuilder grant is being made available for existing owner-occupiers also. This is to do a substantial renovation, or a complete knock down and rebuild.
You could say that as Australia emerges from the COVID lockdown, such measures are needed.
They support jobs, provide housing and get the economy moving again. Who could argue against that?
And most importantly, it makes housing more affordable. That’s what your told at least, anyway.
But does it? Does it actually make houses more affordable?
A Twitter user recently posted these pictures below from the sales page of a Western Australian real estate site.
Source; Twitter via @antdude176
It’s a picture of two blocks subdivided and listed for sale to property developers.
The picture on the left was taken on June 4th, the day the Homebuilder grant was officially announced.
The picture on the right was taken of the same block, one week later.
The land price has increased by the exact amount of the grant. The landowner made the 25k gain. Overnight. As soon as the policy was announced.
It’s simply Sir Winston’s ‘toll bridge’ story repeating from over a century ago.
The lesson from all of this is that such (well-meaning) policies only benefit those who already own the land. Homebuyers won’t see the gains because it won’t make housing any more affordable.
Understanding the role of land and how land values play out in the economy is your key. It’s the key to understanding how the economy moves and why.
It’s also the key for much higher investment profits for you. Because it causes the economy to play out in a set pattern and sequence.
Imagine knowing in advance, what’s coming next for the economy. What that might do to your share market and property investing?
Great opportunities are brewing from the virus lockdown. The time to position yourself for this is now.
Make sure you know how to profit from what lies ahead. Click HERE to find out how.
Best wishes
Phil Anderson
and your Property Sharemarket Economics team.