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What has led to the huge rise in property prices?
The major part of the answer to that question has to be monetary policy and quantitative easing.
Quantitative easing. That really rolls off of the tongue.
What central banks have been up to since the crisis. If you think back to 2006, 2007, people were really worried that we were heading for a new Great Depression, that we'd have a repeat of the 1930s in which the economy would fall into a hole from which it would be very hard to climb out. Central bankers took a decision that surprised many.
After the crisis central banks helped to keep financial markets afloat by buying lots of bonds. And so investors suddenly wanted new sources of income.
Lots of money has been seeking homes in this QE-fuelled boom that we've experienced in the last decade.
There's lower interest rates, and there has been for a few years now. And so that means it's cheaper to borrow. And so a lot of people have been able to buy.
A decade ago your savings account might have been paying 7 or 8 per cent. For much of the past decade the savings accounts have paid 0. It kind of created a demand.
And when there is more demand, of course, the price goes up.
The second big point to make here is about urbanisation. More than half of the world's population lives in cities, now. And as people move into the cities, that's pushing house prices up.
The one's that are booming right now, there's not necessarily enough space, you know. Think about San Francisco. It's a peninsula. It's confined. There's just not enough housing. And there's a tonne of demand to live in certain cities. The prices continue to go up.
People used to have this dream of kind of a home in the suburbs, with a little garden, maybe a picket fence, roses around the door, that sort of thing. Now, that's sort of less of a dream for a lot of people. People want to be absolutely in the heart of things. They want to, as property developers say, live, work, and play in the same sorts of areas. So that's driving people into cities, as well, hence, some of the really extraordinary prices we've been seeing.
If you think about property, it goes in a pretty clear cycle. And these can be 10-year cycles. Go back 10 years, 2008, 2009. 10 years before that, the dotcom boom. We saw the property prices were impacted somewhat after that. Going back before then, it's the 1989, 1990 downturn. And so you can pretty much put your money on the cycle coming back again.