Many people are wondering what effect the latest projected budget deficit for this year of $38 billion will have on house prices in Australia’s major cities and sceptical of my prediction that to-the-most-affordable/news-story/ab2ef05d05b0bdb4ae5f992b0335a8d6″>Brisbane house prices will double from $500k to $1 million in 10 years’ time.
Hard to believe? Well, as you may be aware, the average price of a house in Brisbane over the last 40 years has doubled, every 7 years, with an average rate of inflation of about 8%. The CPI (Consumer Price Index) would average a lot lower than that so the real rate of inflation is higher than the official rate.
Why is that?
In 1998 the Federal Government were enjoying the bottom of Keating’s predicted “J” curve with interest rates almost as low as today. Housing prices had also been stagnant for several years. As confidence in the economy and predicted increase in house prices would push up the CPI and hence inflation, the government just took the cost of paying a home mortgage out of the index.
This provides an artificially low rate of inflation.
At that time they also removed the land costs for owner-occupiers. In 1998 the land cost was approximately 33% of the total cost of a home, but it is now about 50%.
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Getting back to the effect of the estimated budget deficit of $38 billion, it is misleading to say the value of a home might double in 10 years. Its real value is fairly constant, but the amount of dollars to buy it has doubled.
I am predicting that in 10 years’ time the real value of the A$ will have halved. The government does not have the money to pay for services, so they overdraw their account with the reserve bank by $38 billion this year. To fund this they just print more money, which dilutes the value of your money.
This explains why most things now cost twice as much as they did 10 years ago.
Steve Taylor
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At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.
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Steve Taylor & Partner’s blog is opinion and not advice. Readers should seek their own professional advice on the subject being discussed.
