The 200 Year Housing Bubble. Dusko Jocic (January 04, 2006)
A few weeks ago I went to a workshop for potential real estate buyers in Toronto. This seminar was for for a system called Noble Wealth. It was another one of those infomercial style pitches where they try to sell you insider information that is usually common sense. It was about how to become a landlord and make money through renting your property and generating passive income. The seminar panel talked about the housing bubble and how we would all be spared from it and flipping houses was here to stay. If I really want to learn to flip a house all I have to do is watch a TLC show, right? I did learn something new and my time was well spent. The value of
real estate has been consistantly moving up in the last 200 years, or the approximate period of the industrial revolution. So are cheap fossil fuels the pre-requisite for high urban real estate values? When energy becomes expensive, property values could fall back to earth.
I have contemplated becoming a property owner many times but have hesitated due to lack of money and fear. I realise that landlords have no choice but to charge tenants a fair price for shelter based on their income. I believe that peak oil will reduce our incomes or cost us our jobs and thus we will be poorer as a society. In the future, paying back loans will be hard for many homeowners and especially difficult for landlords that rely on passive income from tenents. Slum lords could find themselves fighting both creditors and deadbeat renters. And what about the cost of natural gas and electricity? Landlords will be forced to drastically raise rents to
cover the shortfall of peak natural gas and high electric utility costs. How will 20, 30, 40, 50 and 60 story buildings be heated when we begin running out of natural gas? Will the unemployed tenents keep to their agreements or skip town? When we think of an energy crisis we rarely think of food, heat and power for our homes. We almost always think about transporation systems first.
Before the use of natural gas we used coal, oil and wood to heat our homes. But The Scarcity of Natural Gas Will kill the current housing bubble in most of the industrialized world. During The Fuel Shortages of the 1970s there are urban legends about people buying property in Los Angeles for bags of silver. And during the second world war people in Australia were selling their beachfront property to speculators because of the fear of Japaneese invasion and coastal bombardment. People offload their real estate in mass panics and do so for very cheap prices. It’s funny that in ten or twenty years time suburban lands will become cheap and rural lands might boom in value because of their potential energy returns and growable space. As economic conditions deteriorate in North America and abroad, Canada And the United States will most likely reduce their immigration numbers. Without immigration, population will decline and land will become more available. Not to mention the fact that by 2050 there will be 1 retired person for every two working individuals. So pensions will become unaffordable for governments and corporations.
As the population declines existing resources will be less strained and we may realise the need to manage our resources and create a sustainable economy that has zero percent annual growth. But this will mean there will be a need to reorganize our financial systems to accomodate a credit free society. As the energy crunch begins the value of land will depend heavily on how quickly the crisis happens. And right now, no one knows about that outcome. One thing is certain, there is plenty of land for people to live on, but there will be a shortage of energy.
We are kidding ourselves in thinking land values will remain high. We are at the top of a 200 year housing bubble and I hope people are smart enough to pull out before it becomes too late. With new bankruptcy legislation in the United States you might end up paying for a McMansion for the rest of your life. Even if you default on it and the bank takes ownership.
By: Dusko Jocic