- Property prices can only go up?
If anyone tries to tell you that property prices can only go up, tell them to read
The Land Boomers by Michael Cannon.
It was written in 1966. I started reading it a couple of months ago, but put it down in order to read something else.
But I picked it up again over the weekend…and I’m finding it hard to put down. It’s one of the most extraordinary books I’ve ever read.
When most Australians look for examples about price and asset bubbles, they’ll talk about the South Sea Bubble, the Mississippi land bubble, or the Dot-Com bubble.
But I doubt if more than one in 1,000 Aussies know anything about the 1880s bubble right here in Melbourne. That’s the subject of
The Land Boomers.
The great thing about the book is that, as it was written in 1966, the author’s mind hadn’t been affected by any major contemporary bubbles.
The consequence is that you get a great piece of storytelling about the period, and importantly, the characters involved: BJ and Theodore Fink, Matthew Davies, WL Baillieu, James Munro, and others.
There were stockbrokers, politicians (including premiers of Victoria), bankers, solicitors, businessmen, and more.
But one of the key takeaways from the book is a reminder that even in Australia, property prices don’t always go up. Take this quote as an example:
‘
In rapid succession Fink bought the Gresham Buildings, in Elizabeth Street near Flinders Street, for £52,000 (£1,000 a foot); then Altson & Brown’s premises in Collins Street. These were redesigned as offices and grandiloquently renamed Rothschild Chambers. Annual rents totalled about £6,000 in each building until the crash, when they fell away almost to nothing.’
Fink went bust, paying a ‘secret composition’ of half a pence in the pound (there were 240 pence to the old pound, so the equivalent of 0.2% of the outstanding debt).
You may wonder why he didn’t just hold on. These properties were in the Melbourne CBD; surely they would be worth a fortune again in time.
Not quite. Doing the numbers with the help of the Reserve Bank of Australia’s inflation calculator, £1,000 a foot in 1901 (the furthest back the RBA calculator goes), adjusted for inflation, is the equivalent of $145,710 per foot.
To put that in context, office space in a Melbourne CBD property on Little Collins Street recently sold for $4,021 per square metre…or $373 per square foot.
As these numbers show, property prices don’t always go up.
