Ever wondered why Australian property prices keep climbing? This article explores the hidden forces driving the market, including inflation, shrinking lot sizes, and replacement costs. Learn how to navigate the system and make informed real estate decisions.
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Now, this could be a very controversial article.
The reality is, someone needs to talk about this, and I’m putting my hand up to say, well, I’ll give you the reality check of what’s actually happening.
If you guys are interested in what my thoughts are, then definitely keep reading.
Now, I’ve got to give you the disclaimer upfront. I can’t give you financial advice. I’m a real estate blogger and YouTuber, which means I’m biased towards real estate investing. I run my own buyers agency, which means you might think that all of this purpose is to market to you to get you to use my service.
There’s a small portion of you that read my blogs and watch my YouTube channel that actually need the help.
The rest of you out there who don’t need a buyers agent, already use a buyers agent, or are doing it yourself should still stick around because there’s a lot of value here that I think you can take away—and I hope you do.
Now, affordability is a concern here in Australia, and it’s probably one of the worst when you consider how much our average income is and how much we’re paying per square metre versus the rest of the world.
However, the real estate market apparently doesn’t care about our feelings—and I’ll tell you the exact reason why.
I’m going to present to you the simplified version in one image, and then we’re going to dive deeper into it. But this here, right now, is exactly what is happening.
What most people think is happening is that the price of property is actually going up and that the dollar value stays consistent. It’s the same dollar today as it was 20 years ago, with the same purchasing power it had 50 years ago.
In reality, this is what’s happening: the bottom part of this image is exactly what’s happening right now. The price of property isn’t actually going up—it’s still the same. It’s not like these houses are so much better.
I would go on to argue that most of the stuff being built now is worse than what it was 20 years ago.
However, it’s the second part of this image—the dollar losing its value—that’s key. This image here should give you an idea of why real estate will continue going up forever.
Whether you think about it in real terms or in Australian dollar-denominated terms, the reality is, houses are going to get more expensive.
One of the tricks being used by the government right now is instead of having prices go up, they’re introducing shrinkflation—not only to your Cadbury chocolates but also to housing.
A classic example of this is when you look at new areas being developed.
You’ll notice that the lot sizes keep getting smaller and smaller. It used to be that you could go into an area, and on average, a house would be sitting on 600 to 700 square metres. Now, the average is looking closer to about 250 to 300 square metres—sometimes as low as 150 square metres. Yet the price is still the same.
So, when you break down the cost per square metre, it’s actually more expensive to get into these properties. But the reason it’s being offered this way is because of affordability.
Most people still want to own their own home—it’s The Great Australian Dream. But it’s a dream that’s getting further and further away from reality.
The reason for that is that the dollar we’re using to purchase these properties is dropping in value every year.
We have inflation, which is basically an invisible tax. What I mean by that is that every year, the Reserve Bank of Australia (RBA)—our central bank—aims to achieve a 2% to 3% inflation rate.
Now, what does that actually mean?
A lot of people on the internet talk about inflation being high or low. You might even be having conversations about it right now, but you might not fully understand what it means.
If I have $100 today and inflation is 3%, it means that in 12 months' time, if I want to purchase the same $100 worth of goods, it’s going to cost me $103.
Now, imagine that happening year after year, compounded over time.
This means every single time you think you’re getting a pay rise and things seem to be going well, you might actually feel like you’re making more money than ever before. But in reality, you probably feel poorer than ever because asset prices keep rising higher and higher.
Now, I couldn’t find a chart that shows the Australian dollar specifically, but this is exactly what’s happening to it—if not at a faster pace.
What you see here is the purchasing power of the US dollar over time.
The most important part of this is the notes regarding the Bretton Woods Agreement, which established the gold standard and the US dollar as the world’s reserve currency. This happened in the 1940s.
What ended up happening, though, is that in the early 1970s, the gold standard was abandoned. Currencies were no longer linked to gold. Gold was previously the reserve, and the dollars you used were backed by the amount of gold a country held.
We now have a fractional reserve banking system. This essentially means that if I owe someone money or if the system requires more liquidity, money can be printed out of thin air.
A classic example of this occurred in 2020 during the lockdowns and the pandemic.
The reason why real estate values absolutely surged over the last couple of years isn’t just because everyone suddenly decided they wanted a house.
Now, there’s some truth to the fact that we have increased demand, with migrants entering the country and population growth. However, the primary reason is that so much money was injected into the system, which diminished the purchasing power of the dollar.
This meant that everything denominated in dollars—including real estate—effectively increased in price by 20%.
To give you an idea of the scale, the US money supply grew by $3.8 trillion in 2020 alone. That amount equals 20% of all dollars ever created. This was just in 2020. The same patterns continued in 2021, 2022, and 2023.
The same thing happened here in Australia, which is why property prices kept increasing.
Now, what’s interesting is that we always argue about how real estate is so unaffordable—it can’t keep going up forever. But we have data, like in this chart, which shows that although it started in 1970, you could look back over the last 150 years in Australia and still see a similar trend.
All these lines are following each other, and they all go up toward the right.
If you consider the fact that we’ve had low inflation, high inflation, low interest rates, high interest rates, banking changes, the mortgage cliff, the pandemic, world wars, potential world wars, geopolitical issues—despite all of this, this graph does one thing: it moves up to the right.
This is why it’s so important to understand that if you’re someone sitting on the sideline saying: Well, I think this might happen or that might happen, you’re letting fear dictate your actions.
As someone who understands real estate and deals with it day in and day out, I can tell you that if someone had told me 11 years ago: Ravi, over the next 11 years, we’re going to see this, this, this, and this happen, I might have said: Hell no, I’m not touching real estate at all. I’ll save my money, buy some gold, and become a doomsday prepper because all of that sounds terrifying.
However, that’s the thing—fear. It’s the fear that holds us back.
The people who are willing to take on the risk are the ones doing really, really well—not just in the short term but also in the long term because their strategy aligns with long-term goals.
Another key reason real estate continues to rise is something called replacement cost.
Here’s an overview of building construction output prices.
In a report released by the Australian Bureau of Statistics, it was revealed that:
What you can see here is the same thing: up and to the right.
What really accelerated this trend was the application for Federal HomeBuilder Grant.
When this grant came out, I didn’t think it would help the situation. What we ended up seeing was prices continuing to go higher.
On the surface, it seemed like the government was trying to help, but in reality, all those costs were passed onto the people. Now, prices are much, much higher.
This is a very macro-level view. When you think about it, the cost of building a property keeps increasing.
Meanwhile, the rich are getting richer, the middle class is collapsing, and people who can’t get into the market find themselves falling further behind every single year.
Why? Because the dollar we’re all working toward earning is losing its value.
So, does this system seem fair? It’s not.
That’s exactly why I make these articles—to reach as many of you as possible and say: “Hey, it’s time to get serious.”
The rules of the game are stacked against us. We’re always at a loss.
It’s like entering a casino. But when you go there, you’re almost expecting that you’re going to lose. The casino or the house always wins.
I saw it even with the people around me—they were making good money, and somehow, after about an hour, they lost everything. The house and the casinos get bigger and bigger; they renovate these nice resorts because they have the money.
Where do they make the money? From people like you and me.
The rules of the game are against us, and that is why you need to do the opposite of what average people around you are doing.
This won’t change with or without me. If tomorrow I decided not to upload another video or delete my channel, guess what? Property prices will continue to go up and to the right. Why? Because the purchasing power of our Australian dollar is going down toward the right.
As long as that continues, you’re going to find yourself going backwards if you aren’t investing your money.
I know affordability is a concern. I know it affects most people, and it’s going to affect more and more people every single year.
I hope you guys have learned so much from me in this article.
I hope you guys have enjoyed this one. I’ll catch you in the next one.
Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
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