How Real Estate and Bitcoin are Both Being Squeezed


It’s a long way from seventeenth century England to cryptocurrencies today, but I’ll do my best in today’s Daily Reckoning to take you on the trip. After all, four hundred years is a long way to go back for a bit of investment wisdom. But there’s a link to today’s real estate market. So off we go.

Our man for the moment is Englishman William Petty. He died rich in 1685, after a fruitful life as an entrepreneur and polymath. He made a killing surveying Ireland for the English government. One of his passions was economics. At the time, England was still in the early aftermath of the ‘land revolution’. This period in history set the basic framework for how property markets work in most of the Western world today.

Petty had a very sharp mind and twigged onto the fact — earlier than most — that, ‘the Rent [profit] of Land is advanced by reason of Multitude of People.’ That’s saying population growth drives capital values with a Shakespearean flair.

Fast forward to last week when The Australian Financial Review reported, ‘A group of eight residents in Sydney’s Epping had their homes individually valued at about $1.2 million in early 2012. This week they netted more than three times that amount when their homes sold in one line for a price believed to be higher than $30 million.

Why the surge? The article reports that a planning change in the area will allow residential developments of up to five storeys. An area where there were once eight houses might now yield 138 apartments. The article quoted Urban Taskforce chief executive Chris Johnson saying, ‘The only way we’re going to be able to house future growth is through higher rise buildings that offer reasonable access to the city and jobs.

The Australian Bureau of Statistics has three baseline scenarios for long term population growth, which you can see below:


Source: Australian Bureau of Statistics

The jobs and income growth are in the major cities. The population naturally grows there.
We have to make more living space on the same amount of land the city has always had. The result? It’s exactly as William Petty figured it out four centuries ago — landholders take the gain.

Over time, all the suburbs in Australia’s capital cities that border railway lines or other transport systems should see the same sort of boom as Sydney’s Epping has just seen. There is no other way that Australia will be able to house the projected population increases. After that, the expansion will move to other regional centres where there is more land. The long squeeze has begun.

Colleague Phillip J Anderson’s position hasn’t changed: ‘The biggest boom of all time is unfolding.’The real estate cycle is moving exactly as his property clock describes. It also shows you what’s coming next. The latest update on that will be released Monday. You can see how to take advantage by starting here.

I’ll leave that there because, in the spirit of the World War D investment conference earlier this year, another notable news story this week was bitcoin. It’s about to get squeezed too. The Australian Tax Office announced its intention to class the cryptocurrency as an ‘intangible’ asset, which is neither money nor currency. It also makes bitcoin subject to GST. The AFR sums up KPMG partner Julian Humphrey as saying it will likely double the complexity and compliance costs for bitcoin business transactions.

You can see that digital BTC, a bitcoin miner listed on the ASX, start to look weak off the chart too:

Not Happy: Digital BTC

This comes on the back of New York state’s proposed rule that companies converting bitcoins into national currencies like US and Australian dollars will need a ‘BitLicense’.

According to Trends Monthly, Holders of a BitLicense will be required to record the names and addresses of their customers along with a description of every transaction and daily transactions in excess of $10,000 will need to be reported to the state. So much for anonymity.

Yes, dear reader, the battle for who controls money and where it flows never stops. And there’s never a market left alone for long before the State wants its piece of the action. All for your own protection, of course.


Callum Newman
for The Daily Reckoning Australia

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Callum Newman

Callum Newman

Callum Newman is the editor of The Daily Reckoning and Associate Editor of Cycles, Trends and Forecasts. He also hosts The Daily Reckoning Podcast. Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect. To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to The Daily Reckoning here.

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2 Comments on "How Real Estate and Bitcoin are Both Being Squeezed"

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slewie the pi-rat
slewie the pi-rat
2 years 2 months ago
interesting info. here’s something i had not heard before [via dNoland’s weekly wrap @]: [Paste} August 22 – Bloomberg (Christopher Langner): “Chinese companies renting debt ratings from state-owned banks when raising funds in U.S. money markets are fueling credit concerns as bad loans mount. Including the first program guaranteed by Bank of China Ltd. in New York in 2012, eight firms have set up $2.6 billion in short-term fundraising backed by standby letters of credit, giving them the same ratings as the lender for a fee… Unrated China International Marine Containers Group Co. has a $600 million program. China… Read more »
2 years 2 months ago
One massive problem with your analysis Callum, Jobs. the Australian economy isn’t creating jobs due to high household debt, the second big problem is income growth. There won’t be much of an economy here in future because nearly all of household income is going towards debt repayments and ever increasing health care costs and commodity prices such as oil and food inflation are exacerbating the problem. Real estate has doubled since 2001, but oil is up 10 times. Project that trend forward due to the population pressure you point out and you don’t have an economy anymore. Unless the economy… Read more »
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