Here’s one of the most damaging assumptions you could believe. And how to avoid falling for it.

As we witness pressure being ramped up across all areas of our lives today, I take comfort from one thing.

The further back I look, the clearer the future becomes for me.

It very neatly sums up the huge advantage those of us who study land markets can have over everyone else.

This is why I needed to show you an article I saw recently.

Put aside for a moment the location here (Victoria, we stay close in my home country of Australia in this week’s newsletter). There is something happening here that is also prevalent right across the world now.

It is a tale of government intervention, the inherent timing of the 18.6-year Real Estate Cycle and the assumption driven narrative now needed to get you to part with your cash for sub-standard housing in a poor location.

Let’s look at this in greater detail.

Never has the term ‘buyer beware’ been more appropriate.

Time to find out why.

I have always found it useful to go back in history to try and understand the drivers behind what I see around me today.

Like many other countries currently, Australia has decided to lean heavily into a broad immigration strategy to kickstart the economy after the (in my view) simply insane decision to shut down whole economies a few years ago.

And thus, like many other countries, the fallout from such a strategy has been the complete absence of a coherent and scalable strategy to house these people.

Which ends up affecting not just the new arrivals, but long-term residents who now face the prospect of being priced out of their own neighborhoods.

Which leads us, sadly, to the inevitable question: what is the government going to do about it?

And it’s here that led me to a fascinating case study I’d like to share with you today.

Because it’s so “real estate cycle”.

And completely encapsulates what the second more speculative half of the real estate cycle is all about.

To understand it, we need to step back to 1981. And consider a report with the incredibly dry title, The Metropolitan Strategy Implementation Report.

What a delightful color palette they used too! So early 1980s (for those of you who were alive back then).

And no, I won’t confirm or deny owning a turtleneck jumper the same color back then.

I found this in PDF form on the Planning Victoria website. They include a brief breakdown behind this report.

Published in 1981, the Metropolitan Strategy Implementation Report was compiled by the Melbourne Metropolitan Board of Works.

The report encouraged development in existing areas, and sought to concentrate housing, transport, employment, and community facilities at highly accessible points. Following plans have repeated or reinforced these directions. In 1983 new district centre zones encourage office development in 14 centres and restrict it elsewhere.

The report expressed concern about the mismatch between housing stock and household types and proposed dual occupancies, the redevelopment of old industrial sites in the inner suburbs and greater density and diversity in housing development in outer areas.

Honestly, has any of those concerns been addressed in the intervening forty odd years?

Please look again at the original article I posted at the start.

Victoria has been targeting the same suburbs for 40 years.

Yes, that’s right, it isn’t a new problem. From the 1981 report above, we then had the 2002 ‘transit cities’ redevelopment program then the 2008 ‘central activities districts’ plan.

Finally in September 2023 the formal roll-out of the then Andrews government’s ‘housing overhaul’ plan.

Here’s the critical point for you. Because there is something that ties all these plans and initiatives together. No-one reporting on any of them before or since have picked this critical issue up.

It is this: they all occurred during the second half of each respective 18.6-year Real Estate Cycle.

That where we are right now.

This timing is no accident. Nor is the abject failure of each preceding plan a mystery. Not to those of you who study the land markets.

So, if you are in the market today for yourself or other members of your immediate family for a new home, and such areas appeal to you, I don’t want to say you shouldn’t buy there but…

You must face facts. You, and I, have been the victims of con artists.

Once you truly understand the drivers of the real economy, and overlay some cycle timing, then the reason behind so many previous plans, and their failures, become clear.

You are in fact being conned by seemingly robust numbers, thrown at you by sitting governments.

Around the world, immigration levels are on the rise. You have been told that this is important.

And from a human perspective, it is. But that isn’t what’s driving all this.

Governments everywhere want you to accept that record numbers of migrants are needed to support a strong economy, keep you and your kids in good paying jobs, and keep your household net worth rising higher.

However, those numbers get turned around when folks start to ask how communities are supposed to properly house all these new people.

And so, any switched -on government knows the best way to fight numbers is to throw even larger numbers back.

And, as per the above mentioned 2023 ‘housing overall’ plan, an arbitrary number is used. In this case, 800,00 new homes. That’s just in one Australian state mind.

Do you think it will work? Can our knowledge of the cycle assist us here?

From the above article again.

But a 2001 review of the 1980s policy found that “many of the larger centres do not have a distinctive sense of place” and that the built form was “poorly presented”. It said there was a “sameness” to many of the centres and that the larger ones were “car-dominated”.

“New development has occurred in an ad hoc manner and is not integrated fully with the rest of the centre,” the 2001 review paper found.

We don’t call this time in the cycle the ‘Winners Curse’ phase for nothing. The theory doesn’t align with reality. In each previous attempt where developers and construction companies came on board to attempt to make the Victorian government vision a reality, well…reality bit back hard!

Building an actual community that you would be proud to live in, with all the modern amenities and improved livability, wasn’t the point. It was always just a numbers game.

Developers were mandated to build a set number of homes, and if they wished to continue to receive the cheque from the state treasury, they needed to hit that figure.

For over two hundred years, it’s at this exact time that land developers really feel the pinch of ever rising land prices. Margins become so wafer thin that they find themselves facing a stark choice; cut as many corners as possible or go out of business.

And this point here is really important: the build quality of new homes over the next few years will be amongst the very worst for over 20 years.

And yet you shall have to secure a massive mortgage if you ever hope of winning the next auction you attend to buy one. Winners curse indeed.

For new home buyers or investors, the pressure is on. You will have to be very careful to not overleverage and ensure you aren’t purchasing at the worst possible time. So, get educated!

And here is the best way to start, with membership of our Boom Bust Bulletin (BBB).

Learn how the history of the 18.6-year Real Estate Cycle can guide you through these last very emotional and volatile years of the current cycle.

So, you can make the biggest financial decisions of your life with confidence and history on your side.

Take careful heed of the experience of the Victorian government. This is now playing out across the globe. It’s a numbers game, like it has always been each successive cycle to date.

40 years now and governments still can’t do this correctly.

What matters for them are the numbers of homes built. Not their quality, the livability or access to amenities.

This must be one of the most salient lessons the cycle can give you.

And many folks will learn this lesson in the most financially damaging way imaginable.

But hopefully not you.

Because you can benefit from those same lessons for just US$47 a year!

I know what side of the ledger you should be on here.

Sign up now.