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The property lesson young people have to have!

Peter Switzer
17 October 2017

By Peter Switzer

What’s the big wealth-building lesson every parent should learn for themselves and then pass on to their children and children’s children? The lesson follows but before the summary/conclusion, let me give you some background.

Fairfax’s impressive, though sometimes a little too excessively negative, Clancy Yeates showed us some work from Gregory Sutton, Dubravko Mihaljek and Agne Subelyte, who are researchers at the Switzerland-based Bank for International Settlements. They looked at house prices from 1961 to 2016 (55 years) and this is what

Clancy says they found: “The long-term rise in Australian house prices since the early 1960s has been the most sustained property market upswing in the world in recent decades.”

And he put the whole story into perspective with this: “Since 1961, it [the research] says the cumulative gain in Australian property prices is a whopping 6,556 per cent. That compares with a cumulative 1,332 per cent, or 13-fold, rise in United States house prices over 47 years.”

The work looked at 47 countries and the pointy-headed researchers wanted to understand how interest rates affect property prices.

They found:

  • Upswings vastly outnumber downswings.
  • For 80% of the time, studied property sectors were in upswing mode.
  • Upswings on average last about 13 years.
  • Downswings last about five years and Japan had the longest of 13 years!
  • Since 1961 (55 years), our property prices rose by 6,556%.
  • Norway saw theirs go up a huge 7726% but this was over 66 years!

"Is housing a good long-term investment?” the researchers asked. “Our data suggests that the answer is an unqualified ‘yes’: real house prices increased on average by close to 7 per cent per annum in the sample of 20 advanced economies for which there are 45 years of data on average."

If you want to get academically picky, you could weaken the argument for ‘investing’ in property but the case for property has been proven, at least in our heads, for centuries. Academic proof of the wisdom of buying property for the average investor is nice to see. Thanks must go to Clancy and the researchers.

So, what’s the lesson you pass on?

It’s pretty self-evident: loving property and sacrificing to get it can be hard but in more cases than not, it will be rewarding.

Let’s imagine someone who started work in 1970 bought a home for $18,700 in Sydney, which was the median price for such a property then. By 2016, this has grown to $1,124,000, which is a 5,910% growth in this Sydney asset. This was a median price asset not an exceptional one!

So what do you tell your children? Buy property and if you can't afford it now because the market is too hot or your income is too low, then wait for price slowdowns and income growth.

Tell them getting wealthy is not an instant-gratification game. You need time to get smarter, wiser and money savvier.

Apartment oversupply issues will bring about lower prices and that will be a buying opportunity over the next couple of years but use the time to become a money expert.

I’m not arguing it’s easier now for young people to own property. It has always been hard to buy real estate. Few people lived the life of Reilly in the early days of high interest rates and slow rising incomes, but eventually kids went to school and one income became two and material life improved.

I know it’s hard for young people to get into property but you need to tell them that sometimes you need to bide your time, possibly lower your expectations and build up your knowledge. And eventually they will fulfill their plans.

The legendary US thinker and speaker, Jim Rohn once told us: “Don't wish it was easier, wish you were better. Don't wish for less problems, wish for more skills. Don't wish for less challenges, wish for more wisdom.”

That’s another great piece of advice to give to your children and your children’s children.

If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.

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