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The inflation adjusted returns on property rents

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is zero. The value of property has grown astronomically,

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but the real returns of rents haven't, which is like a company growing

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massively, but the real profits haven't grown. When rates go

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up, asset prices are discounted back at a higher value, which

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makes the net present value lower. It's a mathematical exact certainty.

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You can't deny it. The property boom wasn't necessarily built on the bricks.

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It was built on mums joining the workforce in record numbers. And

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here's why it can't be repeated. The standard mortgage go from 20 years to

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30 years. Now it'll be 40. Then it might be 50. Isn't

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it more like slavery? The Australian property market is well overdue

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for a massive correction. It's in a bubble. I'm Lloyd James Ross, seven

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figure investor and entrepreneur, and I've helped thousands of business owners and

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professionals turn financial stress into success. If

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you're stuck in old money habits, overwhelmed by investing or unsure where

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to start, this is for you. I'll give you the mindset and

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strategies to take control, grow your wealth and achieve financial

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freedom. It's time to make your money work for you. Is

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Australia's property bubble about to implode? Today,

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we're gonna unpack the real numbers behind Aussie property, and

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why the last 50 years is probably a one-off

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miracle that cannot be repeated. I might be the

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only bear in the Australian economy at the moment, I

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get it, but after I finish this episode, I

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believe you will believe me when I say that I can't see

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it repeating what it's done in the last 50 years because of

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these four main items we're going to run through with

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you today. The first part of this episode is to

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understand the golden era or what

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I call the golden illusion. It's an illusion because to think it's going to repeat would

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somewhat be succumbing to some recency bias to

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suggest that what we just went through in the last 50 years will happen again. And I

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mean like from the early 1980s up until now, so 45 to

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50 years of absolute amazing property

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gains. And so let's look at the golden illusion. Houses

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grew or property grew in Australia, say from 70s up

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to now, over the last 50 years, at around about

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7.5% a year, which is unbelievably good. 7.5% a

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year. Typically, bonds produce currently at

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around about 4% to 4.5%. That's the risk-free rate. So anything above

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that, if you look at the inflation rate of, say, core inflation

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at 3%, what you're able to do with 7.5% is you're able to

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beat inflation and get a reasonable return on your money. which is why

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it's done so well. And it's done even better for those who've got leverage, which

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is what's happened over the last 50 years. So you're getting

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7.5% return on leveraged equity. So

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it sounds amazing, right? But if you peel back the layers, if

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you look at the last 50 years, inflation has actually been more like 5%, just

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under 5%. And so if

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you look at seven and a half percent minus five, the real returns on

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property have been like two and a half percent. And so it's

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not great. It's not great. But of course, again, what's

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helped it is the leverage. So if you buy property for say, I

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don't know, $500,000 as an example, and you've put $100,000 down,

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you're borrowing 400K. And if the property doubles, you're

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getting a massive five X return on your

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$100,000 equity. So it's producing, massive equity

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returns or returns on cash for

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deposits, which has obviously created some wealth in this country, right?

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A lot of wealth in this country. But here's the thing. Over

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the course of that time, rents have grown

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almost in lockstep with inflation. And I look at

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our own place where we rent, and yes, I'm a renter. I'm a proud peasant

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renter. I call myself a peasant. And when I get telemarketed,

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they say to me, hello, can I please speak to the property owner? I say, I'm

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sorry, I've got to stop you there. I'm a peasant. They say, what? I

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say, I'm a peasant. They go, what do you mean? I'm a renter. They just giggle. And they get off the

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phone pretty quick, because they want to sell to mortgage owners. All right. Our

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rent, so we've been living in the same place for, we're now in our 13th year.

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Same property, same rental, beautiful apartment on the river, it's nice,

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great location. We've been there for 13 years because we can't find

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anywhere really better to live. It's really good. And so, we live

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in this apartment. Now, we were paying x rent for

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it 13 years ago. And it actually applied the inflation rate

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onto that and it got it up to almost, not quite, but almost

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to today's rent. So what I realized was, We're actually paying, pound

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for pound, when you factor in inflation, we're paying the exact, almost,

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not quite, the same rent as what we were to begin with.

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Fascinating, isn't it? So the real yield to

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our owner, our landlord, is actually identical when you factor

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in inflation. So I actually did that on our own property in

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the last 13 years. So if you look at that, then it's a little

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bit like, well, if the inflation

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adjusted returns on property rents is

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zero, which is what it is. then it's

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like a company that is producing profits, but inflation

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is rising at the same time as the profits. So by and

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large, 13, 14, 15, 50 years later, the

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business is actually not producing any more profits than what

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it did pound for pound when you bought it. Yet

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the value of the business has grown. So the value of property has grown

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astronomically, but the real returns of rents

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haven't. which is like a company growing massively,

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but the real profits haven't grown. And when you find that in a

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business, say in the stock market, a company that's growing massively, but

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without any growth in profits, like Palantir, you

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will find that it will come to a reckoning and

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the value will fall back down to a reasonable value. So it's

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like a PE ratio in stocks. the

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price to earnings ratio in stocks where in property it'd be rent to

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value of the property or rent to price. So you buy a property for 500k, it

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rents for 25k a year, the P multiple is say 20. So

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you're seeing this massive multiple expansion in the housing sector and

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rents aren't really keeping up. What that tells me is it's driven by a

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massive demand, but also the demand, where's the demand

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coming from? And as you'll discover, it's coming from four

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main factors driving it, that I don't believe, and

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a lot of other property bears out there, my friends on X, if

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you haven't followed me on X, go follow me on X, because man, every day I tweet

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on there too. And I've got some friends on there that believe me as well, that we

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were in this together. that we feel that the Australian property market is

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well overdue for a massive correction. It's in a bubble. It's very obvious.

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We don't know when, of course, but I have some friends in this fight

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with me to suggest that it is. So there's four things

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that drove this demand. It didn't come from nowhere. So what are the

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four factors? We're going to unpack these four factors now. So get a short

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pencils better than a long memory. So grab a notepad if you want to take some notes if you want to. But

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this is what has driven the demand of the last 50 years, creating

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this massive price rise but no rental increase pound

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for pound from inflation. So the very first thing is this. The

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very first or what's driven

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this demand is effectively debt. It's

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kind of created this rocket fuel. And what's

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happened is there's been a massive increase in borrowing power.

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So it's not been the fundamentals of any productive gains in

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property. It's been the borrowing power of purchases over

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time. And the borrowing powers come from four ingredients, right,

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that I want to talk to you about. And the borrowing power effectively perfectly

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matches the growth in

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housing. So if housing in the last 50 years has grown by 7.5%, the

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actual borrowing power has also grown by 7.5%. So

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prima facie on the evidence, it seems like the demand has

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come purely from borrowing. And that's

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a little bit like someone who's in their house and all of a sudden you see them with a

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nice car and they put a pool in and then kids are

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going to this nice school and they go on these ski holidays to Aspen and you're like, whoa, they

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must be doing well or they just borrowed all the money to do

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it. And so that's kind of what's created this machine of house

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price buying in the last 50 years. So they didn't grow

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because houses got better, they grew because banks started to

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lend more loosely and people were able to borrow more. So

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it looks like there's an unstoppable money machine but if you open the hood and look inside, the

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growth didn't come from the houses themselves, they came from the borrowing capacity. the

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capacity is a once-in-a-lifetime occurrence because

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of these four factors that have been compacted into each other. So you're

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ready for the four factors? Let's move into the very first

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factor and we'll break them down one by one. The very first factor is this one. And

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I've said this on previous episodes before, but I want to just nail it. Falling

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interest rates. This is the big one. Check

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it out, right? In the 1970s, when Paul Volcker

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had to lift rates to beat inflation from the oil embargo, when

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inflation was running at like 15%, he had to lift rates to

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17% to break the inflationary or break the stagflation, which he did,

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thankfully, right? Would have printed the money into oblivion. So

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when that happened, interest rates went to 17%. 18%. That's

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why they were there. Now, when rates go up, this is an economic principle. Listen

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very closely. When rates go up, asset

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prices are discounted back at a higher value, which makes the net present

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value lower. It's a mathematical exact certainty. It's

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a mathematical formula. It's a physics thing. You can't deny

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it. It's maths. And so when

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you have high interest rates, you're going to have a lower net present value of the asset.

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So that's why when rates were really high, asset prices

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were low. That's why people were buying houses for

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one times annual earnings. In the late 70s, you

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were earning six grand a year as a wage and property might've been eight grand to

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buy. Not the best property, but you could still get it for a reasonable price,

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right? It's like being able to buy property now for a hundred grand, okay?

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And so that's because rates were high, because no one wanted to borrow any money. Who

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wants to borrow money at 18%? People were still doing it because the prices

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of property was so low, you could still do it, okay? So that was

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happening. But of course, interest

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rates went from here, 18%, and over time,

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they fell. They fell. They fell, and

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they fell, and they fell, and they fell, and they fell. And they fell to 0% in

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COVID. So for 50 years, they've

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gone from 18% to 0%. And

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of course, what happens to asset values when you drop rates? Asset

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values rise because debt becomes cheaper. And

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so you get this movement of debt money into

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asset values. It's a valuation boost because of

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rates. So this is what happens. Asset prices are

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inversely correlated with interest rates. Fact. Talk

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to any economist. Talk to Warren Buffett. He'll tell you, right?

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So that's what's caused cheap money to be created, right?

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It's the wind beneath the wings of every property bull market. And

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the wind is now gone. I

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know the RBA wants to bring the wind back. I know everyone

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wants the wind to come back. That's why they're dropping rates to 3.6%. I

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know. But guess what happened this week? They did it and inflation went

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back up. Uh-oh. Oh, we

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can't drop our rates back down to zero, man. How are we going to keep this property bubble

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going? That's what's happened. By

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doing that, the borrowing rate has doubled, okay?

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Not because anyone's earning more rent, but because households are now

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pledging, they're pledging more to the bank, right?

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So that's what's happening. So the inflation, sorry,

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the interest rate cutting has created this massive bubble,

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right? Here's the next part. Just quickly, if

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you're ready to take control of your finances but feel stuck on where to start,

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I have a solution. My book, Money Buys Happiness, simplifies

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investing and wealth building with practical steps to help you achieve financial

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peace. Get your copy via the link in the show notes and let's get your

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money working for you. Now back to the episode. The second big

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factor that cannot be repeated. There's maybe one

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way it can, which we'll talk about at the end, but it just came to me. I

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don't see how this can be repeated. It's the income revolution. What

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that means is back in the 70s, 50 years

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ago, when this property boom began, when interest

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rates started dropping, what we started seeing was women effectively

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were moving in from just managing the household, raising

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children, and more of them moved into earning

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income. Women were still working, but en masse moved into the workforce. And

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they started taking on full-time careers. So it went from maybe what might have been a part-time

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income or no income to a full-time income. So you had two

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of the couples both working. If you think about that, if the

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husband was working as an example and he was making $25,000 a year, The

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woman starts to work full time and all of a sudden they're making 50,000 a year. So

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they double their serviceability, right? And

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they increase it drastically. They may not have doubled it, but they may have got way up

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there. I think the data suggests 1.6 times. So they've improved or

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increased their capacity to

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service loans by 60%. That

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obviously means they can borrow more money. Their serviceability went way up. That

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just meant that they could buy more, they could borrow more to buy a bigger house

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and upgrade. It starts to bid the price of housing up. Does that make

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sense? That's what happens when you borrow money. You have to

228
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service the loan. All of a sudden, they doubled their

229
00:14:04,912 --> 00:14:08,134
servicing ability. The property boom

230
00:14:08,174 --> 00:14:11,657
wasn't necessarily built on the bricks. It was built on moms joining the workforce

231
00:14:11,757 --> 00:14:15,491
in record numbers. And here's why it can't be repeated, because

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there's not a mom and a dad and another mom. Well, in some weird households, maybe

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0.001% in America, there might be, maybe in Australia, I

234
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don't know. But generally speaking, it's the husband and

235
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the wife, or it's a couple, right? So

236
00:14:29,094 --> 00:14:32,715
you can't just add a third person, right? You

237
00:14:32,755 --> 00:14:36,776
can't do that, unless you start bringing workers into the home, right, polygamy. It's

238
00:14:36,796 --> 00:14:41,232
just, it's not gonna work. You can't pull the lever again. Okay,

239
00:14:41,252 --> 00:14:45,254
so side by side, 1970s family versus modern family, it

240
00:14:45,274 --> 00:14:48,975
shows one income versus two. So we didn't get richer

241
00:14:49,015 --> 00:14:52,577
necessarily, we just added another breadwinner to the mortgage. Does

242
00:14:52,597 --> 00:14:57,139
that make sense? Now, the only possible, possible

243
00:14:57,199 --> 00:15:01,561
way, no I can't, potentially

244
00:15:01,661 --> 00:15:05,563
if children stay at home and start working and

245
00:15:05,703 --> 00:15:09,055
bring in that income to that household, then

246
00:15:09,195 --> 00:15:12,418
yes, you could, but culturally, are we gonna

247
00:15:12,438 --> 00:15:16,301
start living with mom and dad for the rest of our lives? Probably

248
00:15:16,361 --> 00:15:19,884
not. Possible, unlikely. So

249
00:15:19,924 --> 00:15:23,087
will we see another full-time income come to

250
00:15:23,107 --> 00:15:26,229
the household? I would say unlikely. So can

251
00:15:26,249 --> 00:15:29,492
it be repeated? No. You're not gonna see that doubling of borrowing

252
00:15:29,532 --> 00:15:34,258
capacity be repeated. So what's the third one? Longer

253
00:15:34,478 --> 00:15:37,661
mortgage lengths, stretching the rubber band, right? And you're

254
00:15:37,681 --> 00:15:41,585
probably seeing noise of them offering potentially, maybe in the future, offering

255
00:15:41,605 --> 00:15:45,208
40-year mortgages, particularly if you're only putting a 5% deposit down, okay?

256
00:15:45,709 --> 00:15:50,313
So mortgages in the 70s and 80s, they were typically 20 years. Today,

257
00:15:50,353 --> 00:15:54,312
they're 30 years, standard. And

258
00:15:54,352 --> 00:15:57,978
some banks, you can stretch it further because what happens is people pay

259
00:15:58,018 --> 00:16:01,204
down a lot, get the equity, go buy something else, reset it. They reset it.

260
00:16:01,384 --> 00:16:04,910
So we're really living in perpetual mortgage world. It's

261
00:16:04,930 --> 00:16:08,405
just become such a normal part of people's payments

262
00:16:08,445 --> 00:16:11,828
every month that, oh, our mortgage payments is falling. Let's go

263
00:16:11,848 --> 00:16:15,172
get a bigger house. Let's bid the price up again. And let's go reset our

264
00:16:15,192 --> 00:16:18,536
mortgage for another 30 years. Because real estate never goes backwards, right, honey?

265
00:16:18,876 --> 00:16:22,641
Right? So you're seeing the standard mortgage go

266
00:16:22,661 --> 00:16:26,745
from 20 years to 30 years. Now it'll be 40. Then

267
00:16:26,785 --> 00:16:30,026
it might be 50. And what you start to see is you start to then move

268
00:16:30,046 --> 00:16:33,688
into a situation where it's kind of becoming more like a long term lease, right?

269
00:16:33,848 --> 00:16:38,049
Where you really the bank owns the property for most of your life, okay, on

270
00:16:38,089 --> 00:16:41,630
paper. So what happens when you extend the

271
00:16:41,690 --> 00:16:45,372
term for a mortgage, is you reduce the

272
00:16:45,412 --> 00:16:48,893
repayments, but you increase the total interest payable over

273
00:16:48,913 --> 00:16:52,157
that time period. So what you might think feels

274
00:16:52,197 --> 00:16:55,861
good in the short term, because yes, you can service the debt better with lower principal repayments,

275
00:16:56,302 --> 00:16:59,844
but you're gonna pay a ton more interest over time. In fact... you

276
00:16:59,864 --> 00:17:03,165
will pay more than the entire value of your house on

277
00:17:03,205 --> 00:17:06,327
a 30 year loan term just in interest. So for

278
00:17:06,367 --> 00:17:09,448
example, if you're buying a million dollar house today and

279
00:17:09,468 --> 00:17:12,609
you're putting down a 5 or 10 percent deposit, which is what most

280
00:17:12,629 --> 00:17:15,991
people do, 10 percent, and you're borrowing for 30 years, you're

281
00:17:16,011 --> 00:17:20,292
going to pay more, not the same, you'll pay more, probably

282
00:17:21,193 --> 00:17:24,434
1.25 to 1.5 times more than the value of the house. So you'll

283
00:17:24,454 --> 00:17:27,896
pay 1.5 million dollars in interest and

284
00:17:27,936 --> 00:17:31,378
your house was bought for a million. People are like, yeah, but my house grows. Yes, but

285
00:17:31,398 --> 00:17:35,520
it's just offset the interest cost completely. So there's no actual gain.

286
00:17:35,540 --> 00:17:39,141
Does that make sense? So you're

287
00:17:39,161 --> 00:17:42,242
going to be paying a ton of interest. And the longer the loan terms go, so

288
00:17:42,262 --> 00:17:45,763
if we push out the 50-year mortgages that aren't really realistic, you're

289
00:17:45,783 --> 00:17:48,944
going to have lower repayments, but you're going to pay a fortune in interest. It's

290
00:17:49,004 --> 00:17:52,505
going to feel like a lease. We didn't make housing more

291
00:17:52,545 --> 00:17:55,946
affordable. We just kicked the can down the road. So that's what happened

292
00:17:55,966 --> 00:17:59,271
when we extended mortgages. And I can't

293
00:17:59,331 --> 00:18:03,014
see that, like what are we going to do? A hundred year mortgages? You

294
00:18:03,054 --> 00:18:06,396
might see 40, but geez, like we're pushing it, aren't we? Like

295
00:18:06,436 --> 00:18:10,720
how many of you really want to be in debt servitude for 40 flipping years? Maybe

296
00:18:10,740 --> 00:18:13,862
some of you do. I mean, I go down the M1 every day and I see people in the

297
00:18:13,902 --> 00:18:17,385
rat race working extremely hard, sacrificing their best

298
00:18:17,425 --> 00:18:20,547
years of their life to get to

299
00:18:20,567 --> 00:18:24,190
a point at 65 and just have their house paid off. That's their one goal in life. It's

300
00:18:24,210 --> 00:18:27,444
like, oh my God. Really? That's

301
00:18:27,464 --> 00:18:30,526
what I was put on earth to do is just pay the mortgage off. I mean, it's a

302
00:18:30,586 --> 00:18:33,867
goal, but with 40 and 50 year mortgages, isn't it more like

303
00:18:33,947 --> 00:18:37,369
slavery? So what's the fourth

304
00:18:37,449 --> 00:18:40,631
factor that can't be repeated? I mean, how do we go, how do

305
00:18:40,651 --> 00:18:43,852
you lift 20 to 30? How do you lift 50% again to 45 years? I

306
00:18:43,892 --> 00:18:47,114
don't know if that's going to happen. Possible, possible. That's probably one of the few

307
00:18:47,134 --> 00:18:51,156
that can be repeated, but geez, I hope it doesn't happen. The

308
00:18:51,216 --> 00:18:54,638
fourth one. real wages growth, like

309
00:18:54,798 --> 00:18:58,541
real wages growth. So actual productive gains in

310
00:18:58,581 --> 00:19:02,564
the labor market. So from 1973 to today, effectively,

311
00:19:03,084 --> 00:19:06,306
wages grew about 5.8% per annum on

312
00:19:06,366 --> 00:19:10,068
average, nominal, which gave the banks more

313
00:19:10,128 --> 00:19:13,871
confidence to lend more over time. So

314
00:19:13,891 --> 00:19:17,974
it allowed people to commit to big loans, knowing

315
00:19:18,014 --> 00:19:21,256
that their wages are going to rise in future, keep servicing those loans to

316
00:19:21,296 --> 00:19:24,739
manage the burden, to soften the blow, right? But today,

317
00:19:25,460 --> 00:19:28,762
real wage growth is weak. It's weak. Real wage

318
00:19:28,803 --> 00:19:33,386
growth is weak. There's been times where like per capita GDPs flat

319
00:19:33,486 --> 00:19:36,949
in Australia for the last seven quarters, almost two years. And wage

320
00:19:36,989 --> 00:19:40,411
growth has been anemic. There was a very short time period there

321
00:19:40,771 --> 00:19:43,793
in COVID or post COVID where the wage growth grew a

322
00:19:43,813 --> 00:19:46,915
little bit because of there was under supply of

323
00:19:47,596 --> 00:19:51,018
labor to the market and high demand jobs. But by and large, over

324
00:19:51,038 --> 00:19:54,640
the last however many years, again, it's five, it's not much. It's

325
00:19:54,720 --> 00:19:58,362
not drastic, put it that way. Today,

326
00:19:58,642 --> 00:20:01,924
real wage growth is like less, it's 3.8%. It's barely keeping up

327
00:20:01,944 --> 00:20:05,326
with inflation. In fact, it's probably meeting inflation. So

328
00:20:05,346 --> 00:20:08,427
without strong wage growth above inflation, you

329
00:20:09,648 --> 00:20:13,009
can't take on any more debt. You're not able

330
00:20:13,049 --> 00:20:16,511
to because you're not getting any real growth

331
00:20:16,551 --> 00:20:19,835
in your income. So as the as your debt's

332
00:20:19,875 --> 00:20:23,438
kind of like being serviced by the interest rate too, you

333
00:20:23,498 --> 00:20:26,880
can't out-earn the returns or the repayments of

334
00:20:26,901 --> 00:20:30,103
your mortgage. So it's not like you can just go and borrow more, basically. So it

335
00:20:30,143 --> 00:20:33,285
just caps the borrowing rate when our wage growth is not keeping up

336
00:20:33,305 --> 00:20:37,028
with inflation. Now, I think also with AI, the onset of AI, what

337
00:20:37,148 --> 00:20:40,590
may happen is certain workers may become more

338
00:20:40,670 --> 00:20:44,273
productive. Whether they'll get paid more, I don't know. But what is definitely

339
00:20:44,313 --> 00:20:48,616
happening is that jobs are being lost en masse. in

340
00:20:48,936 --> 00:20:52,159
sectors that you would never have imagined three years

341
00:20:52,199 --> 00:20:55,401
ago would have ever dropped off, like white-collar jobs. I

342
00:20:55,421 --> 00:20:58,563
know people that are like, oh, yes, the white-collar jobs. I'm in

343
00:20:58,603 --> 00:21:01,965
a blue-collar job. This is going to be awesome. We're going to have all the work. Yes,

344
00:21:01,985 --> 00:21:06,928
but who are your clients? Who are your customers? Let's

345
00:21:06,948 --> 00:21:10,251
say, for example, you have more of a blue-collar style job where you've got

346
00:21:10,291 --> 00:21:13,993
a window washing business. Well, if all the white-collar jobs

347
00:21:14,013 --> 00:21:17,175
are gone, whose windows are you going to wash? It has a massive impact on

348
00:21:17,475 --> 00:21:21,238
everyone. So AI may bring on board the

349
00:21:21,318 --> 00:21:24,500
mass extinction of jobs, not suggesting, well, I don't want

350
00:21:24,520 --> 00:21:27,721
to be this fortune teller with this thing, but it's starting to

351
00:21:27,761 --> 00:21:30,983
happen. It's starting to happen now. So

352
00:21:31,143 --> 00:21:34,525
what will be the impact on wage growth if we're starting

353
00:21:34,545 --> 00:21:38,207
to be replaced by robotics, AI, et cetera, et cetera? How's

354
00:21:38,227 --> 00:21:41,950
that going to impact things? We're not going to see the same 5.8% growth

355
00:21:41,990 --> 00:21:45,091
in wages like we saw in the last 50 years. So it's unlikely to

356
00:21:45,131 --> 00:21:48,963
be repeated. And you're also looking at demographics. Look

357
00:21:49,003 --> 00:21:52,527
at the baby boomer population, that's why they're called the boomers, from

358
00:21:52,667 --> 00:21:57,151
World War II. The baby boomer generation also

359
00:21:57,371 --> 00:22:01,155
produced substantial amounts of innovation, productivity,

360
00:22:01,215 --> 00:22:04,578
gains, etc. And we're now having to import and

361
00:22:04,618 --> 00:22:09,077
immigrate, we're actually immigrating unskilled workers. And

362
00:22:09,137 --> 00:22:13,282
so how are we going to repeat this

363
00:22:13,422 --> 00:22:16,767
baby boomer demographic? And also when the baby boomers

364
00:22:16,907 --> 00:22:20,151
die, who's going

365
00:22:20,171 --> 00:22:23,637
to get all their housing? So if you have this massive influx

366
00:22:23,657 --> 00:22:27,820
of immigration for a period of time, well not immigration, from baby boomers and immigration, and

367
00:22:27,840 --> 00:22:30,902
you got all this housing to service the baby boomers and all the nursing facilities and

368
00:22:30,922 --> 00:22:34,405
everything, all the old age, and that comes off the ball, the millennials

369
00:22:34,485 --> 00:22:37,627
can't quite replace the baby boomer generation. It's a little

370
00:22:37,647 --> 00:22:40,870
bit less. But what's going to happen to

371
00:22:40,890 --> 00:22:44,018
their houses? It's what's happening now. So

372
00:22:44,398 --> 00:22:47,879
you're getting a lot of these big houses and

373
00:22:48,199 --> 00:22:51,881
we don't have the birth rate to replace the

374
00:22:51,901 --> 00:22:55,422
number of houses we have. So we may experience,

375
00:22:55,482 --> 00:22:58,743
and this may happen, this is probably also why they're loving this immigration at

376
00:22:58,763 --> 00:23:02,185
the minute. What may happen is in Japan with

377
00:23:02,205 --> 00:23:05,486
the population fall, housing is super affordable because

378
00:23:05,526 --> 00:23:10,048
they build all these houses for people that are no longer there because they die. That

379
00:23:10,088 --> 00:23:13,294
could happen, right? We're not going to

380
00:23:13,374 --> 00:23:16,836
see the natural birth rate in Australia like

381
00:23:16,856 --> 00:23:20,777
we did after the war. This is not going to happen again. So that's

382
00:23:20,817 --> 00:23:24,418
also something that can't be repeated in the short term. So

383
00:23:24,438 --> 00:23:27,799
we've got an empty fuel tank. So what now? What's happened?

384
00:23:28,320 --> 00:23:32,381
All these four factors have created this Goldilocks, this

385
00:23:32,441 --> 00:23:35,602
golden era in property. And of course, you get the baby boomers saying,

386
00:23:35,622 --> 00:23:38,890
you're going to buy a property? It's going up and up and up. They are

387
00:23:38,930 --> 00:23:42,052
a byproduct of the last of those four factors in the last 50 years, they

388
00:23:42,152 --> 00:23:45,333
are. To suggest it can repeat like that is

389
00:23:45,513 --> 00:23:48,715
very, very, very unlikely. And a lot of them aren't giving

390
00:23:48,735 --> 00:23:52,917
you that advice from data, they're just giving that advice because that's what happened to them. It's

391
00:23:52,957 --> 00:23:56,198
a little bit of survivorship bias in that too. So what

392
00:23:56,258 --> 00:24:00,440
we have to plan and understand is what's going to happen in the next 50 years

393
00:24:01,001 --> 00:24:04,222
for those who are going to be around, right? What's

394
00:24:04,242 --> 00:24:07,845
going to happen? Now that the fuel tank is empty, we've got interest

395
00:24:07,865 --> 00:24:11,128
rates are now normalized. You're not going to get record rates down to 0% again. If you are,

396
00:24:11,288 --> 00:24:14,410
I think it's going to create stagflation. It's going to be a problem. They're going to raise them again. It's just not going

397
00:24:14,430 --> 00:24:18,294
to happen. The second thing is you're not going to see moms

398
00:24:18,314 --> 00:24:21,476
join the workforce again because they're already in the workforce. Couples have to go to work

399
00:24:21,516 --> 00:24:24,639
together at the same time just to afford daycare. You're not going to

400
00:24:24,679 --> 00:24:28,622
see mortgage terms potentially grow

401
00:24:28,662 --> 00:24:32,947
by 50% again. Unlikely. Maybe 40 years. Maybe. And

402
00:24:32,987 --> 00:24:36,350
you're certainly not going to see wage growth like we

403
00:24:36,410 --> 00:24:39,492
have because of the onset of technology and so forth and

404
00:24:39,532 --> 00:24:42,754
demand for jobs. So if we can't repeat that and

405
00:24:42,774 --> 00:24:46,057
we have an empty fuel tank, what now? What now?

406
00:24:47,358 --> 00:24:51,887
What's going to happen? Unless we add a third breadwinner

407
00:24:52,788 --> 00:24:55,970
and we put a granny flat on the property and put someone in there, which by

408
00:24:55,990 --> 00:24:59,412
the way, people are probably doing now. They're like, hey, how do I get a granny flat

409
00:24:59,432 --> 00:25:03,155
and put a third worker in there so I can get some income? Yes? Smart

410
00:25:03,175 --> 00:25:06,318
people are playing that game because it's just so expensive to service a

411
00:25:06,338 --> 00:25:09,740
loan now or to buy a property. They need to do that. So

412
00:25:09,760 --> 00:25:14,101
unless we add that, we're in trouble. So what's going to happen next? Where

413
00:25:14,121 --> 00:25:17,542
do we go from here? Government policy doesn't

414
00:25:17,642 --> 00:25:21,103
seem like it's going to help because they just drop rates down, sorry,

415
00:25:21,223 --> 00:25:24,824
deposits down to 5%. It's going to increase the demand again.

416
00:25:25,924 --> 00:25:29,385
And if rates drop even further, maybe again, they're going to

417
00:25:29,445 --> 00:25:32,666
keep creating this massive bubble. And so what I

418
00:25:32,826 --> 00:25:36,733
anticipate is if we can't repeat the past 50 years, And

419
00:25:36,753 --> 00:25:40,476
we have an undersupply of housing in the country and we have immigration. What

420
00:25:40,496 --> 00:25:44,198
we may see is unsustainable price

421
00:25:44,218 --> 00:25:47,460
growth that's going to definitely collapse. Or

422
00:25:47,800 --> 00:25:51,563
we may see a flat line for many years where housing goes sideways.

423
00:25:52,143 --> 00:25:55,265
It doesn't have to collapse, but it could just go sideways. And

424
00:25:55,285 --> 00:25:59,088
if you're someone who's ever held an asset for 20 years and it's gone sideways, that's

425
00:25:59,188 --> 00:26:02,730
painful, right? Because of your expectations of it going up previously.

426
00:26:04,246 --> 00:26:07,869
So it may not crash, but returns will be tethered to fundamentals.

427
00:26:07,909 --> 00:26:11,272
So rents and wages. So it may just creep up, but

428
00:26:11,312 --> 00:26:15,135
I can't see it going to be at this like seven to 10% compounded

429
00:26:15,155 --> 00:26:20,660
growth rate. Like it's a birthright. Okay. Again,

430
00:26:21,060 --> 00:26:24,303
immigration policy, foreign buyers, maybe some supply shortages

431
00:26:24,323 --> 00:26:28,332
that are happening at the minute. They're going to perhaps. help

432
00:26:28,432 --> 00:26:31,956
it, but they're not going to be able to repeat what's happened, okay? It's

433
00:26:31,976 --> 00:26:35,059
just unlikely, right? To think that

434
00:26:35,079 --> 00:26:38,863
you're going to bet that what's happened in the last 50 years,

435
00:26:39,384 --> 00:26:42,607
the property miracle is repeatable, I can't see

436
00:26:42,647 --> 00:26:45,971
it. It's a little bit like trying to think that the dot-com bubble is going to happen again, and

437
00:26:45,991 --> 00:26:49,523
you can buy all these companies with no earnings and just going up and

438
00:26:49,563 --> 00:26:52,764
maths. So a house is not

439
00:26:52,824 --> 00:26:56,566
magic, it's a financial asset as we've discussed, and

440
00:26:56,706 --> 00:26:59,907
the math will always win. I know it doesn't look like it,

441
00:27:00,467 --> 00:27:04,448
and Ben Graham, who's Warren Buffett's mentor, or

442
00:27:04,468 --> 00:27:07,671
was his mentor before he passed away, he said that in

443
00:27:07,712 --> 00:27:11,255
the short term, the market is a voting machine.

444
00:27:12,116 --> 00:27:15,319
But in the long term, it's a weighing machine. So right now you're

445
00:27:15,339 --> 00:27:18,522
seeing people vote with their feet with the demand, people buy all these houses, that's

446
00:27:18,542 --> 00:27:21,865
a voting machine. It's not based on fundamentals. And long term,

447
00:27:21,985 --> 00:27:25,148
it's a weighing machine, the math will always win. So,

448
00:27:26,769 --> 00:27:29,892
is it time to rethink how you approach your wealth? Well, it

449
00:27:30,052 --> 00:27:33,255
definitely doesn't mean, and people have asked me this, do I sell my house? It doesn't mean you

450
00:27:33,295 --> 00:27:36,498
go out and liquidate your house. It just means to

451
00:27:36,698 --> 00:27:40,401
think or anticipate that the last 50 years

452
00:27:40,441 --> 00:27:44,464
of gains is going to happen to your place is probably unlikely.

453
00:27:45,085 --> 00:27:48,528
But does it mean it's going to collapse? Not necessarily. So you don't have to freak out

454
00:27:48,548 --> 00:27:51,732
and go, should I sell my house? But probably understand that if you've got

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00:27:51,792 --> 00:27:55,074
capital and you're going to deploy it into real estate, to think that it can repeat

456
00:27:55,094 --> 00:27:58,395
what it did is just unlikely. That's all. It doesn't mean you're also going

457
00:27:58,415 --> 00:28:01,717
to get nothing. It just means it's going to grow a lot less, I would think. And

458
00:28:01,757 --> 00:28:05,259
so you've got to start exploring ways to

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00:28:05,359 --> 00:28:08,601
grow your wealth outside property, which is where

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00:28:08,661 --> 00:28:11,822
I've basically created our wealth. I don't own a

461
00:28:11,883 --> 00:28:15,612
single property. I'm unmortgaged. I'm

462
00:28:15,772 --> 00:28:18,914
unmortgaged. I have no property. We have no property, but

463
00:28:18,934 --> 00:28:22,637
we have wealth. We have time freedom. We have cashflow.

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00:28:23,217 --> 00:28:26,879
We have security. We do. There

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00:28:26,939 --> 00:28:30,162
is a way. Okay. And I'm

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00:28:30,202 --> 00:28:33,704
excited to talk to you about those on the upcoming episodes of how to build wealth

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00:28:33,744 --> 00:28:36,926
without property. All right, but go check out other episodes. That's it for this

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00:28:37,026 --> 00:28:40,168
one. Hit the subscribe button. Come and give me a comment. Leave me

469
00:28:40,208 --> 00:28:43,311
a comment. Come fight me in the comments or come and support me in the

470
00:28:43,351 --> 00:28:46,834
comments. I don't mind. I'm open to anything, but I love your interaction.

471
00:28:46,854 --> 00:28:50,377
Thanks so much for tuning into this. And those who do leave comments and interact and

472
00:28:50,417 --> 00:28:53,819
hit the subscribe button and our subscribers, thank you so much for paying

473
00:28:53,839 --> 00:28:57,302
attention. I hope this has been super informative, but also at the same time, somewhat

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00:28:57,322 --> 00:29:00,725
engaging, entertaining, and helped you think about property going forward.

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00:29:00,745 --> 00:29:03,927
See you in the next episode. Thanks for listening to Money Grows on Trees. If you

476
00:29:03,967 --> 00:29:07,428
enjoyed the episode, leave a five-star review on Apple Podcasts and

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00:29:07,468 --> 00:29:10,670
Spotify and subscribe to us on YouTube so you never

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miss an episode. And if you're serious about building wealth, make sure to

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check out the links in the show notes and follow me on all social media

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platforms, at LloydJamesRoss for more. See