One of, if not the best investments you can make in Australia is land within proximity to our capital cities.
We have one of the fastest-growing populations in the world, with 80 percent of our population growth occurring in the five major capital cities – Sydney, Melbourne, Brisbane, Perth, and Adelaide.
Not many global cities are forced to handle such a fast population growth rate.
As our numbers grow, so does the demand for land, this is because land is in finite supply, and as such its value increases.
The saying ‘safe as houses’ perhaps should have been ‘safe as land’ but it doesn’t have the same ring to it, does it.
This has been true since Adam was a boy.
In Bulletproof Investing I noted that the value of land had increased by 8 percent above inflation compounding over time. It’s an amazing rate of growth; it rivals that of Warren Buffett the most successful investor in the world!
It’s safe to say we’re at an interesting juncture in Australia right now; one that I think will accelerate the increase in land values.
We have doubled down on growing the population. No matter which side of government you look at, our politicians are committed to growing the population – which results in more taxpayers – to offset the increasing costs of an aging population (healthcare, welfare, etc).
The by-product of this kind of commitment is immense pressure on housing affordability.
The land the house sits on is the most expensive part of a house. Reducing the land size has the biggest impact on house affordability.
The average size of a new block of land produced in Australia today is around 375 square metres. We’ll see that number hit 300 sq m quickly and perhaps even 200 sq m in the not-too-distant future.
A 400 sq m block selling for $400,000 won’t mean a 200 sq m block sells for $200,000. More likely the 200sq m block will also sell for $400,000 – you see the price stabilises, but you get less for it.
We will see this begin in new developments because that’s easier to do. There aren’t existing road networks to deal with, which means that from the outset there is a blank canvas to work with on block depths.
Existing road networks throughout Australia work in 60m to 80m parallel networks. That means you get two blocks of land each 30m to 40m deep backing onto each other.
Smaller blocks require more efficient use of space.
I recall being on a study tour in the United States in 2017 and one of the locals was perplexed by our Australian obsession with hallways. The reason … the Americans got rid of hallways in their affordable housing products years ago.
In time I have no doubt we will see housing in Australia move that way. These houses will have to work around the existing road networks but a 5m x 40m, 200 sq m block (a 400 sq m block split in two) is an entirely effective housing product. A 7.5m x 30m, 2225 sq m block (a 450 sq m block split in two) is even more so.
This is a comfortable, affordable home, there’s no compromise just more stock which means more homes for our growing nation.
In the meantime, seize the opportunity to acquire as much land as possible and benefit from the increase in land values per square metre.
It will not happen gradually over time in a linear fashion. Instead, it will occur in significant jumps; almost overnight from 375 sq m to 300 sq m to 200 sq m, and so on.
Safe as houses … or, well, the land the house sits on.
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