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: https://reia.asn.au/wp-content/uploads/2018/05/Media-Release-8-May-2018-Budget-2018.pdf however, 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)”. I guess real estate agents are sales people and they profit from measures that increase affordability and hence demand for property. With the majority of buyers, 65% as of the last census, being owner occupiers, you understand their point of view.
However, we as students of The 18 Year Real Estate and Economic Cycle see this budget differently. If you haven’t read my blogs or studied the cycle, you are missing out on a massive advantage in predicting the future direction of the property market, share market and economy.
A whopping $75 Billion, yes you heard it correctly, 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 facilitate the movement of people, goods and 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 a 4.5 times multiplier. 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 Phillip J Anderson on The 18 Year Cycle.
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, services and people and have a significant economic impact
The breakdown of what each state and territory will be receiving from The Roads of Strategic Importance initiative is:
- $1.5 billion for a Northern Australia Package for Queensland, the Northern Territory and Western Australia;
- $400 million for Tasmania;
- $220 million for the Bindoon Bypass in Western Australia;
- $100 million for the Barton Highway upgrade for New South Wales and the Australian Capital Territory; and
- $1.3 billion for future usage.
The larger cities will also see a boost through the $1 billion Urban Congestion Fund to reduce the level of urban congestion.
For a breakdown for each state, territory and regional areas is as follows (1):
New South Wales
- $1.5 billion is being contributed towards new projects, which include
- $971 million for the Pacific Highway Coffs Harbour Bypass;
- $400 million for the Port Botany Rail Line Duplication;
- $155 million for the Nowra Bridge;
- The Commonwealth and NSW governments will be equally funding the first stage of the North South Rail Link in Western Sydney; and
- The construction of the Western Sydney Airport will commence this year with up to $5.3 billion of government equity being contributed as part of stage one, with approximately 28,000 direct and indirect jobs to be created as a result by 2031.
- $7.8 billion for new major projects, which include:
- Up to $5 billion for the Melbourne Airport Rail Link;
- $1.8 billion for the North East Link;
- $475 million for Monash Rail;
- $335 million for electrification for the Frankston Line to Baxter;
- $140 million to improve congestion;
- $132 million to complete the duplication of the Princes Highway East from Traralgon to Sale;
- $50 million for Geelong Rail Line upgrades; and
- $9.3 billion for the Melbourne to Brisbane Inland Rail project has started and is estimated to start this year, with an approximate 16,000 direct and indirect jobs created during construction.
- $5.2 billion for new major projects, which include:
- An additional $3.3 billion for upgrading the Bruce Highway;
- An additional $1 billion for the M1 Pacific Motorway;
- $390 million for the Beerburrum to Nambour Rail Upgrade;
- $300 million for the Brisbane Metro project; and
- $170 million for the Cunningham Highway — Yamanto to Ebenezer (Amberley Interchange).
- $2.6 billion for new major projects, which include:
- An additional $1.1 billion for the METRONET rail project;
- $944 million to tackle congestion in Perth; and
- $560 million for the Bunbury Outer Ring Road.
- $1.8 billion for new major projects, which include;
- $1.4 billion for North-South Road Corridor projects;
- $177 million for the Regency Road to Pym Street section;
- $220 million for the Gawler Rail Line electrification; and
- $160 million for the Joy Baluch Bridge.
- $1.4 billion for North-South Road Corridor projects;
- $461 million for the Bridgewater Bridge replacement; and
- An additional $59.8 million for the Tasmanian Freight Rail Revitalisation package.
Australian Capital Territory
- $100 million for the Monary Highway upgrade.
- $280 million for upgrades to the Central Arnhem Road and the Buntie Highway.
- $200 million will be injected for a third round of the Building Better Regions fund in order to support regional infrastructure and community investment; and
- $272 million is being added to the Regional Growth Fund and is predicted to create more jobs.
Queensland’s Great Barrier Reef was mentioned in particular, which includes:
- $535.9 million being given to it in order to support the World Heritage-listed site and the jobs it creates,
- $443.8 million to partner with the Great Barrier Reef Foundation to support the reef, $200.6 million to improve water quality,
- $100 million towards coral restoration and adaption research,
- $58 million towards programs for the crown-of-thorns starfish,
- $40 million towards Reef health monitoring and reporting; and
- $44.8 million for plan delivery and engagement with Traditional Owners and the broader community for reef protection.
Overall an impressive infrastructure spending spree which is well overdue. It will create jobs not only to build it but also to maintain it into the future. It will facilitate increased economic activity. All this which be captured in 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, especially in the capital cities, you are likely to pick up capital gains of much more than that let alone increased rental income from the higher demand due to the benefits derived from increased demand. This is an example of how you the property owner benefits from the capture of the Economic Rent as defined by the economist David Ricardo. The cycle will still turn and repeat as it has done for hundreds of years. The only choice you have to make is will you profit from it, or will you let the 2-3 cycles in your lifetime pass you by?
(1) McVeigh, John, MP, (May, 2018), 2018-19 Budget—Infrastructure: Busting Congestion, Connecting Our Regions, Improving Safety and Creating Jobs, http://minister.infrastructure.gov.au/mcveigh/releases/2018/may/budget-infra_01-2018.aspx