Waking this morning to the news of the budget gave me a laugh. I opened an email from The Real Estate Institute of Australia with a link to their press release titled “Budget benign for housing: REIA”. You can read it for yourself here: Media Release but the first line says it all “The 2018 Budget had no measures that specifically address housing supply and affordability, according to the Real Estate Institute of Australia (REIA)”.
However, as students of The 18 Year Real Estate and Economic Cycle we see this budget differently.
A whopping $75 Billion!
YES, you heard it correctly, $75 Billion of transport infrastructure. This will drive economic activity and will be captured in the one place – land values.
It will create jobs to build the infrastructure and will expedite the movement of people, goods and enhance the provision of services throughout the nation. Land in close proximity to the infrastructure will increase in value and past studies in major cities around the world quantify that a 4.5 times multiplier applies.
You as the land owner will benefit.
So, to say this is a benign budget for the property asset class is not accurate for those who are fortunate enough to have come across the work of educators like Calnan Flack and Phillip J Anderson.
The map below from Commsec details the spread of the spend. Notice the majority of infrastructure is in the capital cities, especially focused on Sydney, Melbourne and Brisbane.
$3.5 billion in funding for The Roads of Strategic Importance initiative to upgrade existing roadways. This will facilitate the movement of goods and people and resulting a significant increase in economic productivity.
The breakdown of what each state and territory will be receiving from The Roads of Strategic Importance initiative is:
Overall this impressive infrastructure spending spree is economically overdue and welcomed by the major beneficiaries, land owners. It will create jobs to build it and maintain it into the future. It will facilitate increased economic activity.
All this which be captured in increased land values.
If there are approximately 15 million tax payers in Australia, the cost of the $75B is $5000 per tax payer. As a land owner within close proximity to any of these infrastructure initiatives, you will receive capital gains well in excess of this figure.
Just the increase in rental income from the higher demand due to the benefits derived from increased productivity that will drive demand will be a significant windfall for land lords.
This is the Economic Rent, or as our colleagues at Calnan Flack have called it “The Effortless Advantage” in action.
The larger cities will also see a boost through the $1 billion Urban Congestion Fund to reduce the level of urban congestion. The breakdown for each state, territory and regional areas is as follows:
Australian Capital Territory
Queensland’s Great Barrier Reef was mentioned in particular, which includes:
So the Cycle continues and Your knowledge of the cycle is invaluable in understanding the future impact of the outcomes from the 2018 Budget.