Mailbag, incl: Aren’t higher house prices rational? August 16, 2026

26:15I think this is where Rob's like on the money here is that we do have more, when I say just got to be careful with this as well, it's not so much more discretionary income per se, is that the satisfaction of certain consumer needs have become so much easier. So we do have a lot more capacity to sort of acquire these kinds of things. But I do still come back to the point that when it comes to things like medicine, food, shelter, and shelter is the one that really, because we have had incredible productivity gains in terms of food as well. But I don't think pointing to increased prosperity that has resulted from technological advancement in one area as justification as to why something so fundamental as shelter should be so out of whack.

27:12I do stop at that. If we were talking about this and it was ivory backscratchers that were the rare thing is like, well, you don't really need one of those. So you're okay. But everyone needs a house. And the other problem with it is, and Rob touched on it, is it's the increasing wealth divide. You know, it's the K-shaped economy. It's that as well. So it's like, yeah, everything you say is right, but I don't, I don't, it feels wrong that the only way you can do it is through an inheritance or through incredible fortune. The fact that someone very capable, motivated, hardworking, smart is never going to afford a home because they happen to be born to the wrong family.

27:53Wrong family is not the right word, but, you know, a family without means. Yeah, yeah, yeah. It's a tragedy and it's an indictment on our civilization. So I don't think we're even disagreeing, Rob. I think you make a really nuanced and interesting point. But I just I feel as though housing is the stakes are too high. You know, we can go 10 ,000 years into the future or 10 ,000 years into the past. Housing's always a deal. Like, you know, no one, not many of us like to sleep in the rain, right? And if that, if everything is sort of, well, if a lot of other things are getting better, but that one fundamental reality is getting worse, I just, I can't celebrate it as a success of the system.

28:33And I think they're both true. And I think this is where – I know you're a markets guy. We both are, but you more than me in terms of kind of market solving most things. And I just very quickly say, just on that, when I say markets, I just mean people because people are markets. Sure, sure. But the natural kind of – you're making the point, I think, very justifiably that the market here is not necessarily serving the common good or at least the distributional good for the reasons that you've talked about. And on that – sorry, mate. I keep going on, but just on the nuance there, it's not a market failure, right?

29:09What it is, it's the distortion of the market that causes the failure. You know, I made the point, we throw all of these distortions at the market. It doesn't work, and obviously it doesn't. We talked about this on Friday. Brian Freddie could see it doesn't work. Oh, the market has failed. It's like, no, the distortion has failed. The market would have sorted this out decade or so ago, right? Because it never would have got to these kinds of levels in the first place without massive and unjustifiable stimulus. It just wouldn't have. Sorry, mate. I think that's right in scale, not right direction.

29:41And why I think it's interesting is that – oh, man, where to start? So I think the hours worked is really important to look at the – Rob's right. So you're right that it's a market. Rob's right that it's naturally just evolved that way. Well, not naturally. I know there's been intervention. But broadly speaking, it's the marginal buyer who sets the price. Well, sorry, the underbidder who sets the price, right? We've kind of talked about that a million times. I think that's absolutely right in my view.

30:12And that's totally fine and natural and normal if that's what you choose to do. That's what the market chooses to do. The problem is that because we're in a market system, in a free world, in an economy where we do make those choices, we're each hostage to the group. And this is kind of where we've got to think about what is housing policy. Is it just, you know, to make the market work as best it can and the consequences will be the consequences? Remember, market failure isn't – markets working doesn't necessarily guarantee a fair distribution or reasonable – affairs are bad work because it's loaded – reasonable distribution or even distribution.

30:43It just means that people are transacting openly and freely and the price falls where it falls. The question for us to answer – What a disaster. Except – Free exchange amongst, you know, free-thinking people. We've got to stop that. Well, I'm going to say we may need to, right? Here's the point, because we financialise housing to such a degree that if the social outcomes are not desirable, then we're talking about governments stepping in where needed to resolve. Externalities is the easiest obvious example, right? Pollution in the river. There's no market for that. Coming down to paint the river.

31:19All right. Mark's not going to solve for that, right? So we need to solve for that. And so if we took a view that the number of hours worked is too high, there are things we can and should change. And there's multiple solutions to, multiple ways to solve part of this problem. The reality is, in my mind, that 67 % to 70 % of people are still too low, in my opinion, in terms of owning their own homes. I don't want everyone to have to, but I suspect of that 30 % that don't, some happy renting, some actually want to buy a home and can't for whatever reason. And we can't solve everyone's buy a home problem.

31:54If you're an unemployed alcoholic, I'm never going to get you a point where you can buy your own home. We can look after you in social housing, but you're never going to be able to. And I should have chosen an example maybe, but you get my point. This is not going to be possible for some people, and that's okay too. If, though, we say housing prices have got to a point where we think the social outcomes are negative, untoward, what sort am I looking for? Suboptimal. Let's go suboptimal. then we would choose to step in okay so young people can't afford a home we should change something so they can they can do it is is a value judgment based on an outcome that we did that we desire and that's okay my person i think though you disagree i personally that's completely okay so what do you do you sit there and go right if that's the situation if that's the story if that's what's going on then you step in and make some change so rob i think you're right that it's naturally got to this point for all the reasons that you suggest again naturally sorry it's been interventions for MC.

32:50No, I would disagree with that. But yeah. Well, but directionally, I think it's true. I don't think house prices are 8 ,000 hours in 2026 without the government interventions. That's what I'm saying. I'm saying it's not. I'm saying it's gone up anyway, regardless of that as my point. So I think housing is more expensive. You know, labour hours. I just frame it slightly differently. You're saying that something has failed. It is the market that has failed, and therefore we need to intervene. No, no, no. I'm saying the market has got us to this point. point market plus intervention has got us to this point yes and i think for the reasons rob's talked about which is we have more discretionary income and we also chosen in air quotes we've chosen to put it towards housing because we want the house the bigger house or the other house or just that house or a house it's genuinely scarce yeah exactly and everyone else is going to be 19 ,999 hours so i've got to be 20 ,000 to get the house yeah yeah yeah so so whether it's 20 ,000 hours 15 ,000 hours 10 ,000 hours i it seems again i'm i'm supposing but it seems impossible to me that housing wouldn't be more expensive.

33:50Frankly, just because of second incomes in households alone, right? There was more discretionary income to go around. And yes, we want to buy the overseas trip and the nice ice cream and the EV and the whatever, but also in that group of rising wants because we have the means to fulfil those wants, we're prepared to put more of that increased income into housing because we value it, right? Ross Gittin wrote a article years ago. It was called a superior good, I think was the phrase. Basically, I think that we're likely to want more than other things. We're going to put more money towards. It's more important to us.

34:22Of course, there's a shelter, right? So that makes perfect sense. So I think, Rob, I think you're right. It's a natural functioning of the market to find a price where the underbidder is going to drop out. Where I think there's issues, so Ram's right about some of the monetary stuff, and I will go back to not immigration but population overall, we have vacancy rates that are at record lows. And here's the very simple mind experiment. If you've got nine houses and 10 families, prices go through the roof. If you've got nine families and 10 houses, prices go through the floor. Why? Because we're talking about the scarce goods, right?

34:58So whenever we have a situation where there is an undersupply relative to the demand, prices are going to go up because price meets at the margins. But speaking of markets, supply and demand, 101, right? Where's the equilibrium point for prices? Where supply and demand intersect. You push demand up, you push prices up for the same supply. And Ram's point about being scarce is absolutely true. Now, we can, there's lots of things. There's government regulation around supply and zoning. That's a thing. Population is a thing. But if you had an empty house in every street, you watch prices. You know?

35:31Now, by the way, we've also talked on Friday about prices falling already in the last couple of months. Why? Because we changed some of the tax incentives. So there are a million things you can and should do. I think you're right, absolutely right, Rob, about the reasons for the directional move broadly. Plus, I don't have Andrew's thoughts in, so I combine those together. It's a natural outcome of the more demand for scarce resources, to Ram's point. That's absolutely true. I don't think that that is enough to say, well, let's not do anything to help people who can't afford homes. So, Rob, you're describing the system.

36:04I think it's fine, perfect. But I think you then say, okay, so that's how we got here. Are we okay with where we got to? And if the answer is no, then you make whatever interventions or stop intervening, maybe to Ram's point as a first protocol. That's the way. That's what I would get. Stop helping. Stop helping. That's not going to be enough, though, of course, right? So it's not really – I think the first thing to do is actually define the problem, and then you work out what tools you use to get to a preferable solution based on where your values sit. My personal view, I think we should have 85 % home ownership, and I think we should be targeting that, and we should be not intervening and or intervening to get to those levels because I think shelter is a human right.

36:42I think we are a safer, happier, more stable, more prosperous nation with higher levels of well-being. If those who can reasonably afford or could reasonably afford to pay for their own shelter can actually do it. So I would absolutely twist – I would bend policy in that direction. Now, as Ram said, it starts with saying, what things should we stop doing? First home buyer grants would be a great start. Tax incentives for investors, I think we're a great start. So, you know, you stop doing the rubbish stuff, you may still have to do more at that at some point. But the question really isn't what should we or shouldn't we do before you answer, where are we trying to get to?

37:16And then you say, right, we don't want to get to here. Here are the things in order of probably least intervention, I suspect, to get us there. And then you get from 67 % to 74 % and you go, right, we're still a bit away. What do we now need to do? Because again, remember, we're a country that has an economy, not an economy that happens to have a country, right? So it's like what social, I say social, it sounds a bit kind of left-wingy, but I mean, what wellbeing outcomes are we targeting? And how can we help more Australians be happier? I don't think that should be a controversial idea. So if we need to, we should do something.

37:51If we start by not doing things, that's a good result too. But I think knowing how we got here, Rob, to your point, I think Ram's actually added to it. So I'll say both together. That's how we got here. That's important. That doesn't necessarily mean, therefore, it's unavoidable or somehow good or okay. Even if you're wrong, it was entirely natural. Let's just presume for a second that there's no intervention that's made it worse. You just got here anyway. It's like, okay, perfectly fine. You've explained it beautifully. And it's natural that we got here, if it was. And if we got here that naturally, that's completely fine.

38:22Do we, though, have a problem? And if the answer is yes, then you go, okay, how do we solve for that outcome that we think is most important. Yeah, I just don't think we, I just wouldn't use the term natural. There was nothing natural about it. You know, again, all, I'll take it to the completely, and I'm not advocating for this, but to illustrate the point, I'll take it to the other extreme here and just say it's pure open, open and free, right? And the cure for high prices is high prices in anything that you care to choose, right? This is like, holy crap, I can get a hell of a return on property.

38:54I guess I'll start making some more property, right? supply would come on and it would correct it down. But what we have done is we have, and when I say we, I mean there have been deliberate policy choices. There have been actions rather than inactions that have added to demand and reduced supply. It's like, and again, people go, the market has failed. It's like, no, that is, someone took a market, which is just a bunch of people doing their own thing. And they came in and said, no, I'm going to make it, I'm going to make it even more appealing for you to want this. And I'm going to make it even harder to get.

39:31And we turn around and go, wow, it's really, really unaffordable. It's like, you stop it. Stop doing it. I mean, the biggest elephant in the room here that no one ever talks about, and I just mentioned it because it's my swan duty to do it, is that, you know, the fractional reserve, just put it this way, ungodly amounts of credit creation are the biggest elephant in the room for house prices, right? I mean, when you literally quadruple the money supply over a couple of decades and it all goes into, that is also a distortion. It is a distortion. And it just, that is the irony of ironies for me that just is so difficult once you kind of see it is to have the very opposite of a free market cause great damage and then to turn around and blame the free market.

40:15It just sort of like, what? I didn't do anything. I was just doing my thing. And you came in and you distorted it all. It's just, here's like, we could go around and around on this all day. So I'll take it to a slightly different point here. I was thinking about this the other day because, sorry, shut me up if this is an unproductive segue. AI is just the thing, right? And we've talked a bit about it before, universal basic income, what's it going to happen, a lot of tragic stories. I actually had a lot of anecdotal stories just recently for it all came at once. So just speaking to some kids, sons, friends, a guy I know who works at university.

40:58It's like, they're all going like, what are we going to do? There's no jobs for us in the future. It's just, it's going to sort of like, and even Elon's out there saying as well, we're entering a world of abundance. Who needs money? Yeah. I think he's actually right. Long enough timeframe. I think we, I don't got, please tell me we're on that path because we're, because the other direction is not where I want to go, right? Yep, yep. But I would imagine, particularly with the monetary system that we have, I imagine that in that world we find that we get lots and lots of really cool cheap gadgets and houses go through the roof, like it makes up until now look tame.

41:37Because no matter how smart the AI or how cool the robots, again, there's only so much land, you know, that it's kind of the – scarcity is a thing, right? And I'm really not going to go down the Bitcoin route here, but it is an important thing. And when one quantity changes and another quantity is fixed, i.e. when the amount of money chasing the same amount of goods, you know, when that scenario happens, the only thing that can correct is the price. And to go back to Rob's point, and that just meant higher price means more time input that's required to all of this kind of stuff. So we have to understand things at a fundamental level here.

42:17And I'm not 100 % against you, mate. There are absolutely interventions that I think are absolutely appropriate. But intervening without recognition of that fundamental truth, that natural truth, and I'm going to use the word natural very deliberately here, because there is nothing more natural than a human being saying, I want this for whatever subjective reasons I want it. And another human being going, well, I've got it. And if you give me that, I'll swap it to you. like gorillas do this. Like we see this in the animal kingdom. This is very, very kind of natural. And to interfere with that, okay, fine.

42:55When there is a problem and there are unintended consequences, okay. But we can't ever push against that bedrock of reality because it will lead to the unintended consequence, which is exactly where we find ourselves. Housing is unaffordable. Let's throw more money at it to make it more affordable. And the exact opposite happens. And we all turn around and go, you know what? I know it didn't work the first 18 times. Let's try it again. Like, it's just, and you feel like, I feel it frustrates me when I have these conversations that everyone sort of likes to paint you as some uncaring, you know, laissez-faire economic sort of nerd that just like, oh, it's the survival of the fittest.

43:36No, it's not about that. It's at all, right? It's like, why does welfare even come into this discussion? It's an important discussion, but it's a separate kind of discussion with all of this stuff. I'm just saying that if you really want to allocate resources in the most fair and productive way possible, and fair I am using in a very deliberate way here as well, then just let people own stuff and let them freely transact. And then if there is some kind of really weird distortion that is there, then let's address it by recognizing the fundamental human right of being able to own and trade stuff freely.

44:13And rather than pushing against our nature and pushing against things that just, you know, naturally do not want to be there because it's just not going to work. And it's really not a crazy, I don't, well, maybe it is, I don't know. I don't think it's a crazy thing because we can see it. Like my background was science, right? And so what, you would observe a phenomenon. This is the great scientific revolution. And at one point, humans thought, you know what? Why don't we try and come up with an explanation for that? And then why don't we try and test if that's true? And if it is true, we'll consider it true until proven otherwise.

44:50It's really great. It actually means that we can now go to the moon and communicate by talking through pieces of glass. Like all of that has come from that one insight. and yet when it comes to the most fundamental of social sciences which is the economy which is how do humans coordinate and cooperate and increase their shared prosperity we ignore that we ignore that we just we go on vibes and feelings even to the point where it's like hey here's a thousand different empirical points that we can point to that shows you this objectively does not work. And we will go, I don't know, let's try it anyway.

45:26And it's just, and then I don't know, I'm way off on a tangent. I guess what really what I was going with all of this kind of stuff is that scarcity and housing is a great example of this, will always force the other thing to move. And the other thing in this case being the money and the price, right? And until we sort of address the basic year nine economic level supply and demand kind of stuff, it's just never going to move. And all of this other stuff is just fiddling at the edges in my humble view. Sorry, mate, that was a long disjointed ramble, but that's how I roll. That's my brand. That's a really good one, mate.

46:08I like it a lot. Yeah. I guess just to finish to Rob's point, And I think, you know, how we got here is one, is worth understanding. Oh, yeah. Whether that's a desirable outcome is different. And even if, and I know you've made the opposite point, Matt, I'm not trying to disagree with you, but even if the entire thing was natural to use your word, if it totally explained, I'll tell you, wherever you get to, it's like, okay, do we like the place we're at? If not, you make some changes. And so it's not necessarily that, you know, again, I don't believe it is purely natural. You've made the point beautifully, But I'm just making the point that even if you can't explain a phenomenon, like, you know, hey, if I don't bring the oxygen, I'm going to die.

46:48It's like, that's natural. There's no oxygen in the room. Yeah. Maybe we should put some oxygen in the room. It's just kind of worth, you know, there's understanding the cause. That's really important, by the way, Rob. So I love that you've asked the question and posed it. The question is, are we happy with that? And if not, then what do you do? Or don't do it, to Ram's point. I'll tell you what, just to answer your question, how did we get to what we did? We deregulated the banks. We financialized housing. We unleashed ungodly amounts of credit into the system. We added layers and layers of bureaucracy and regulations on top to make a supply-side response almost impossible, you know.

47:21That's how we got here. That's how we got here, right? Oh, and then we used the very thing that we leveraged into, we used that as a self-referential collateral for further lending. Like, that's how we did it. I would bet a great sum of money that if we were to go back and split realities back in 1993. So we just came out of a recession, we split it, and we didn't do those things. I'm not saying that we live in a perfect utopia, but I'm pretty sure that capital city house prices aren't 14 times average incomes and it takes, you know, 40 years to save up for a mortgage that you'll be paying off, your kids will be paying off for you.

47:56It just demand is housing is always going to be there, but the capacity to spend the levels that we have has only been enabled by rampant credit creation. Wouldn't have happened otherwise. I think that's largely true. Couldn't have happened otherwise. I don't want to re-argue the point, but I also think it's worth – a market is most easily understandable in a closed system. And I don't mean that in a cerebral power of an economist's fantasy world. I just mean the other thing I think is really worth thinking about is population growth. So I looked it up, and it turns out 93 was a great year to choose, mate.

48:25You chose? Because according to – well, we're probably higher than that. According to macro trends, Australia's population has gone from 17.6 million in 1993 to over 27.6 million, exactly 10 million more, which is a nice coincidence, in whatever this data was pulled. I think we're higher now at 28 million or something. I don't – and yes, that's added supply, it's added demand. This is not anti-immigrant, not anti-population. So nothing other than I think you're right in a closed system. I think if you increase a population by effectively more than 50 % in that 23-year period, it adds demand that has to be accommodated.

48:59Totally. And whether it's permanent or temporary, whether it's – and yes, there is only a response at all. There's other responses to it. I know that's still a market to your point, But I just make the point that if you add demand at a faster rate than you can add supply or choose to add supply or any of those other words, you're going to get to that situation. And to the extent that if you're not going to have open borders, you're going to have a population policy. If that population policy should at least, hey, we're going to zone. We are going to restrict supply. We are going to change the rules.

49:24We are going to – cool. Then if you're going to intervene, intervene, I guess, on both sides of the market as well. Put your thumb on one side of the scale only. You're going to have to even up the – not that you should try and have equality. don't get me down the commerce route because I'm not talking about that at all for anyone who wants to rant. Just that idea of you've just pumped prime one side of it and gone, oh, the other side didn't catch up. How about that? It's like, well, I kind of think it could have been expected. And you're right. You're not wrong about any of those things, mate, other than you create the circumstances in which that's turbocharged.

49:52It's self-referencing, right? It's literally they're feeding on each other. And that's part of the problem is all of these things, the money creation, the incentives for first-time buyers, the new population. one of them alone not particularly attractive put 3, 4, 5, 6 together and let them multiply against each other and then you get these almost exponential problems because you just made your problem worse with the other one and very professional there sir, I love it seriously here's the other fascinating thing just on that idea of productivity and technology advancement Now, wouldn't you think our ability to build a house has gotten better?

50:37Like we should be able to produce bricks and timber and cement much more cheaper than we ever did on a real inflation adjusted kind of basis. And actually we have. It turns out we have. We're really good at that. And some of the prefab stuff in particular grants incredible efficiencies and scale advantages and a whole bunch of other things. So it's like, well, why does it cost so much to go to put a house up? And it's the other, it's the imposed, again, I'll come back to it. It's the distortions that have come back to it. And again, I'm not saying just let anyone build anywhere, anything they want, anywhere they want, any way they want.

51:13I'm definitely not saying that, but it's a spectrum. And when you look at the costs of, I mean, I was having a little whinge to you off air as some of the stuff I'm going through at the moment, wanting to do a little bit of And I was just like, oh, my God, are you trying? Do you want this to happen? Like how many middleman grifters do I have to like grease the palms of to get this thing through, you know? And it's sort of like there are things that are just easy. There are things that are just you could really fix very, very, very rapidly. You're right to point out to a 50 % population increase.

51:44But have you seen a map of Australia at night? It's all black. There's a lot of land. And again, I'm not necessarily saying that, you know, we just mow down the, you know, all of the forests and put up townhouses. But there is no shortage of houses. There is no shortage of ability to build houses. The way that we build houses has become more efficient outside of the bureaucracy and the red tape of it. These are choices inadvertently made that stops your right to point to the demand response. I would just say a natural, better functioning market would actually far more rapidly and decisively have a supply-side response.

52:26The fact that that has been limited, to your point, on the supply side, we limit it, and on the demand side, we accelerate it. There is only one natural outcome to that. I don't think the argument for equalising both. Either release the land or bring the people in. or whatever combination. Yes, yes, yes, yes. Don't screw with one side of it and then be surprised when, again, it's quite a man curve, right? Stop screwing with it is the key. Stop screwing. And like that's put appropriate things around it, but it is just, it is not, I don't think, I would be interested if anyone thinks I'm wrong here, write in and let us know as to why.

53:01We seem to build a lot of really nice suburbs in the 60s. No problem without all of this kind of stuff. Houses, by the way, that are considerably better built than today and are still standing and actually considered some of the more prestige kind of properties around today. And I was like, I don't know what great natural vandalism occurred in that era in regard to residential housing that we needed to address so thoroughly as to go so, you know, massively backwards in our capacity to allow markets to respond. And by markets, I just mean people. People going, wow, there's a profit to be made in houses.

53:38I can deliver that. And everyone wins. Anyway, we could go around and around on this all day. We've done it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

53:53Let's get to a question slash comment from an anonymous listener who says, sorry, scroll up here. First is requested anonymous, please. Done. Before I get to my questions, allow me to perform the obligatory knee bending. And just quietly, that's what we're here for. I found Motley Fool after leaving my C-suite role at a small cap ASX listed company. The job had everything I thought I wanted, the opportunity to lead, make a difference and get well paid. Except I was slowly selling my soul to fund someone else's ego. I won't bore you with the details, but let's just say when a founder owns 30 plus percent of a company and the dividend is personally worth a million dollars to them, the best long-term decision for the business has a funny way of looking a lot like the best short-term decision for the founder.

54:39So true. And it's an interesting counterpoint. Not all founder-led businesses, says our correspondent, are great long-term value creators and it highlights the importance of knowing when a founder should step aside. I could probably have a good guess at the business actually, but I won't. Good, thank you. I still believe in the theory of founder-led out performance. I just find myself shaking my fist at the sky whenever the topic comes up on the pod, fair enough. Yeah, no, that's a good point. Yeah, you know what's interesting there? Just on that as well, and I guess we've made this point before as well, but there tends to be very different skill sets in the sort of the founder who gets it off the ground and then the person who is more of an effective manager once it is at scale, you know, certainly at the level being listed on the ASX.

55:25and the other thing is you see it all the time. It's just how much, how phenomenal the luck involved in a lot of these things, you know, and not to take anything away from the people that achieved great things, but, you know, there was certainly sort of luck there and you see it, I can think of a couple right off the top of my head right now where I'm nodding along with some like, like well done to get where you did, but your capital allocation decisions are entirely about lining your pockets as opposed to what's best for long-term for shareholders. Yeah, it's a good point. It's a great point.

55:56And by the way, it's so easy to fool yourself. Oh, yeah. It's not, I mean, I don't know. Maybe, dear correspondent, you're right, and this was completely, you know, deliberate and craven and whatever. Or maybe it's just you kind of convince yourself that I really like the million dollars and I think we can probably afford it. We can pay that out. And I think business is still okay, I think. And I think we're okay. And you kind of go, no one, well, not no one. Most people consciously don't say, I think I'll screw the business by doing this, right? Because the other thing is if they own 30 % of the business and assuming that's worth more than the million-dollar dividend, there's more value in them growing the value of the business than taking the dividend out, right?

56:29And so it's kind of like at some point that they will be, if you're right, they are probably, like I was just, fooling themselves rather than being deliberate. But I could be too generous. I agree with you, but the only difference is that what people fail to recognize is, and this is really apparent with the SpaceX launch, is that, you know, people really think, I think that there's just a big pot of money that's just sitting around, that, you know, the 30 % shareholder can just walk away with. Like, no, they're in a lobster pot. They can't get out. Not easily. Not easily. They can't just dump 30 % of the stock and walk away, particularly if there's any key person risking it and they're pretty fundamental to the business.

57:06It's sort of, I actually can, I could rationalize it to myself in that situation. It's like, yeah, maybe personally for me, it's better to strip the guts out of the company and just pay myself like, like, you know, a ridiculous salary and ridiculous dividends, knowing it will hobble the company and lead to its ultimate demise in 10 years. But if I could do everything right, it's kind of like I still, I'm still working my guts out here and I can, it's really hard for me to take any money out unless at a left field, the deep pocket of the acquirer just comes and pays me cash to walk away. You know, it's sort of like I'm massively rich on paper, but I actually don't have a lot of money.

57:48It's like the classic boomer, asset rich cash flow volume. And look, I'm not trying to make, oh, we should feel sorry for these people. I'm not. I'm really not. But it's just like I think too often the person in the street just thinks that there is this money that can just be at the click of a button turned into liquid capital, i.e. cash, and it's just not the case. No, fair. Our correspondent goes on. leaving gave me time for family for life and apparently for financial podcasts your discussions rants and general wisdom have genuinely set me on a better path thank you that's very kind remuneration substantially lower wealth in the fuller sense of the word substantially higher oh that's true wisdom right there right isn't it yeah I find myself content getting rich slowly riding the economic waves pretty well even the bitcoin crashes sorry don't mention the war cheers for the twice Nice weekly counselling sessions.

58:43It's our pleasure. I'm not sure if this is the right platform to mention it, says our correspondent, but I'm sure you learned it, gentlemen. I wrote you across my second favourite podcast. Thank you. Acquired. For any fellow listeners who haven't come across it, Acquired is a three to four hour episode per episode, sorry, three to four per episode deep dive into extraordinary businesses. After all the ETF and Vanguard chart discussions on the pod machine, I couldn't believe it when their latest episode, it might be a bit later than that now, landed on Vanguard itself. I already knew Vanguard was great.

59:15Low-cost ETFs, go fishing, repeat. What I didn't know was the remarkable story of John Bogle and how the whole thing came to be. It's full of great takeaways and Uncle Buffett quotes that any Motley Fool listener would enjoy. So there you go. They then say, sorry, that sounds like a paid ad placement. I assume it's not. I assume you haven't just used us to pump the Acquired podcast. If it was, let Acquired know they should return the favour. Now, my questions. I'll be brief. relatively. AI. Why aren't we talking about this more? Australia is spending$368 billion on submarines that risk being obsolete before they're delivered, while the rest of the world watches drones reshape warfare in Ukraine and Iran in real time.

59:57AI, job displacement, the absence of sovereign wealth fund, structural budget deficits. How will we fund ourselves into the future? The world is moving fast, and we seem more concerned having royal commissions into whether The Woolworths has Whoop-Ix on special. When will Australia get out of its own way and realise it's not the centre of the world? I'll stop yelling at the sky now. My physio is going to be very upset because I'm nodding furiously. Yeah, neck brace in the morning. Oh, man. That's more a comment than a question, I suspect. I mean, we are talking about AI, but I think you're talking about national capability and stuff question, and I think that's fair.

1:00:36I personally I'm not as free market as Andrew but I don't want governments picking winners so I don't want Australia spending don't spend money on the subs if it's not worth spending on that's a whole different question but I wouldn't I would be literally careful about the whatabouts we're spending money over there we could spend it here instead we could or we could just not spend it you know I don't I think it's kind of like a you know I don't think Australian personally I don't think the Australian government should be building AI capability I think we can afford to no right we can afford to let the market It's like in your lane.

1:01:07Yeah, exactly. Can you think of a more difficult, fast-moving, bleeding-edge industry, and you're going to have a bureaucrat in Canberra making capital allocation decisions? That is just a recipe to blow up ungodly amounts of money. Imagine in 2000 with the dot-com boom, and it was like, oh, Australian government should get into internet companies, and the amount of money that would have been spent, and whatever. Oh, my God. So I hear you on AI. I really do. Look, subs, I hate talking about defence policy because it's the hardest thing. I reckon it's the hardest policy area in government because the future is unknowable.

1:01:38And I've said a million times, in 1938, we were dramatically underprepared for World War II. And if someone said we should spend more, someone else would have said, why spend more? Where's the threat? It's like, ooh, actually turns out we didn't have enough. And then every year since then, we've had defence capability we haven't needed. And so it's been a waste of money. It's like insurance, right? So I honestly, I hear people say that subs are probably going to be obsolete. It seems like it's probably likely. But only the experts though, mate. Right. And the money is stupidly high. So I don't know.

1:02:04I don't know. But I don't opine on Defence Gene, really speaking, other than to say no one can know and it's just a question of how much insurance do you want. And I don't know the answer to that. Weet-Bix and Royal Commission, you're absolutely right about. There's so much performative crap in government. I'm a big fan of banning gambling ads, by the way, speaking of tangents. And Cathy Wilcox, the journo, cartoonist actually, they're often the best journos, the cartoonists, tweeted, and I'm trying to desperately try and find it, There's two speech bubbles. One of Albo saying, people are being scammed, lose$2.7 billion to scams, so we're going to crack down on it.

1:02:41And then saying, people are losing$27 billion to gambling, but we're going to leave it untouched. I've very badly described it. But basically, there's a lot of performative politics. Remember Albo on the too much air in the chip packets? Do you remember that tweet from a little while ago? Oh, for God's sake. I know. So, yes, I agree with that. I think we've got government trying to do too much in the wrong areas, frankly. And you mentioned AI. job displacement is, for all that, I will say one thing. I actually really do think government should have a contingency plan for AI. I really do. And I say contingency plan specifically rather than plan.

1:03:15I don't want governments deciding what AI is going to do. But in some version of the world, if Elon's right, we don't need money in 10 years time. In another version of the world, we have 25 % unemployment in three years time that takes 10 years to get rid of because the machine just cut massive swathes through some of the employment market. And the reality is probably somewhere in between. I would like to believe that those in charge of national wellbeing actually have some contingency plans in place for that sort of circumstance. Not because I want them to pick the winners or be responsible for everything, but if we think governments have a role in national wellbeing, and I do, I think it's a no-brainer.

1:03:51And I don't see evidence of any significant contingency planning, even a range of scenario planning. If this, if that, if that, if that, if that. Cool, great. We're set. In case of emergency, you break glass. We need plan A, B, C, D, or E. Conditions are closest to D. Great. Grab plan D. Let's go. And the plan D might be nothing to do. Unemployment goes from four and a half to five and a half for six months. Kind of sucks, but there's not much we can do about it. Through to actually unemployment's now 2 % because we've made so much. Productivity's gone through the roof and everyone's got a job and we're all doing wonderfully fulfilling things.

1:04:24Or unemployment's 25%. Oh, crap. we've got some big issues. We've got civil unrest. You know, we need to start dealing with some of this stuff. Here's what we'll do. Again, I'm being deliberately provocative here, but I see nothing on that. So, yes, job displacement, I think you're right about. Absolute sovereign wealth fund, don't get me started. Structural budget deficit, don't get me started. So, yeah, I think there are things that government should be doing to help us plan for the future, even if it's uncertain, rather than getting involved in trying to create or somehow incentivise that future.

1:04:52Absolutely. I said to you on Friday, let's do, maybe we'll do it next week. is let's talk a bit about data centers and AI because it is a hot topic at the moment. But one where it's like it's really a lot of Dunning-Kruger vibes. There's a lot of people who I reckon I read something a few years ago and that's all I know, but I reckon, you know, and these nonsense kind of arguments that are out there, which if I push back against, again, I sound like I'm just out to burn the environment down. It's not. But like here is a radical new technology that is here to stay and it's going to actually longer term be an incredible force for good in my humble opinion.

1:05:34You know, it's like someone just invented the calculator and we're going to say, no, you can't use the calculator, uses too much electricity, this and that. And it just on these very one-dimensional kind of analysis, ignoring all of the other things that come from it. You know because you're in the game, mate, but it's always risk-reward analysis. That's what we do. What's the reward of buying this company? Great, but what's the downside as well? What's the downside of having a data center here? Yeah, well, it's going to use a lot of electricity and a lot of water and all of those kinds of things, creates a bunch of noise and heat.

1:06:09And they're like, okay, that's something. Let's not brush that under the rug. But can we at least address the other side of the coin there? And by the way, it feels to me as like much of the pushback is more to do with sort of zoning policy than it is actually anything fundamentally to do with the industry itself. So like there's people conflating to, I'm outraged at this thing. You make the same argument wind farms as well. There's a whole host of things. And it's kind of like, yeah, what you're upset about is zoning rules. You're not upset about this actual technology. And I would just sort of say, here's the great thing from the government's perspective is let the free market do it.

1:06:45Because they'll do it. They'll raise the capital. They'll make the investment. If they want to overinvest, then great. We're going to have all this great infrastructure left over. Someone can come in and pick up for pennies. It doesn't matter. The data center is still there, right? They're going to create jobs. They're going to create tax revenue. They're going to do all kinds of things. And that doesn't mean just open the floodgates and let anything land where it is. I mean, that's just stupid myopic straw man kind of argument because that's usually the argument that I have here. And it's like there is a reason that China is the largest economy in the world.

1:07:19You know, they leaned into, irony of ironies, that Communist Party leaned into the free market system and created ungodly wealth for that country and now put them on a footing that none of us can match. So here and in Europe, and to some extent even in the US, we're trying to regulate and conserve our way to prosperity. you know and and the others are going no we're going to make lots of really significant capital investments so our capacity to do things is just off the charts we can do lots of things really cheaply really effectively and these technologies compound so one when i've got that i can do that and when i've got that and that i can also do this and just and you go from digging some more out of the ground to having a bit of technology in your in your pocket that can do almost anything You know, it's sort of, we need to embrace these things.

1:08:13We need to unleash the power of human productivity and imagination, which is all the free market system is, right? Yes, let's put appropriate guardrails around. Yes, can we please not put this stupid center right in the middle of a dense population area where there is no appropriate infrastructure around? Absolutely, these are all very, very sensible, appropriate things. But the surface level discussion that we have on AI in this country is just, it is embarrassing. It is embarrassing. And it's just like I just feel as though given the pace of how fast things are moving, we see this on our door and we're just going to – the car has just been invented and we're just putting up barriers and we're telling everyone to know we're going to help you buy a second horse.

1:08:52You know, it's just – it is insane and I can't suggest that – I emphasise that more strongly. Let's lean into it. We are – Australians are no different from any other people, you know. there there's a very wide spectrum you know but within our ranks we've got a lot of really smart hard-working smart people with with with dreams to do things like get the hell out of the way let unleash that potential you'd be surprised what's happening right now there's some kid in year 11 who's going to change the world you know blacktown public school you know you don't know where it's just going to come from here.

1:09:36And it's just like, let's remove every possible barrier to that kid going out there and doing that thing. Appropriately ensuring that they're not the next Lex Luthor and they're just going to do whatever they want. Like, obviously, there are tragedies of the common. There are all these very well understood kind of problems. We just, it's a spectrum and we're way too close to one end of the spectrum and not the other. and we're going to blink and we're going to find that a lot of the other countries in our region and some of them that perhaps we're not less friendly with just have such incredible capacity and what have we got?

1:10:18Well, we're still just flipping houses to each other and digging rocks out of the ground. Meanwhile, China's got a brain with an IQ of 4 ,000 that's just solving quantum computing and doing like the most amazing things in the world and we're just selling them rocks. It's just like energy, investment, research and let it happen. And it doesn't have to be, in fact, it shouldn't be the purview of someone with no skin in the game and no consequence to failure making those decisions. I can't say it more firmly enough. Set the rules, get the hell out of the way. Nearly said it. Well done, well done, well done.

1:10:57Hey, last point from our question, then we'll wrap this up. Two, Australian house prices. Long pause, they write. It's well documented. The prices can't fall without causing serious economic pain. Fine. But here's what I don't hear discussed. If house prices are genuinely out of whack, then building or renovating should represent a clear saving. You'd essentially be buying below market. Except that's not the case. Right now, building often costs more than buying established. So, either house prices aren't actually that inflated relative to construction costs, or the cost of everything, labour, materials, trades, has risen to match, which suggests the housing bubble hasn't just inflated property values, it's inflated the entire cost base of the economy.

1:11:45How do you, says our regular listener, square that circle? I have my theory, but I'd love to hear where I've got it wrong. Thanks again. Keep up the great work. Thank you for the questions. Everything's been inflated. Like it has. That's the definition of inflation, a general persistent increase in prices across the economy. Absolutely downstream of printing a godly amount of money. But yeah. But my point is there is, again, we won't go over old ground. Stack up all of the costs of building a property. And it's the same when you look at healthcare. Why has healthcare gotten expensive when we're throwing more and more money at it?

1:12:20And it's like there's still the same number of nurses and doctors per bed. It's because it's all gone to administrative levels and regulatory levels and all these other kinds of things. And that's, so while there is definitely, definitely true to sort of say there has been increase in labour and materials costs, that's probably not out of whack with, it's not the lion's share of the growth, is what I would say. And also that's actually a very important signal. Prices are signals, prices are information. And is it any wonder that someone goes to, think, you know, leave school. It's like, what do I do?

1:12:55It's like, wow, I can earn a lot of money being a builder. I might be a builder. Why not? Great. Increase the supply, bring down the price, let things function as they naturally kind of should. And I think you'd find a lot of these things go away, right? Rather than adding more oversight and bureaucracy when that's the very think. We have a real issue in Australia comparing, not Australia globally, right-sizing our comparisons. So what are we really talking about? If we're talking about knocking down a 60-year-old weatherboard, a fibro place, and replacing it with five bedrooms, a media room, a swimming pool, and a second story, and whatever else, then the price of, quote, property or, quote, housing is really different.

1:13:50I asked a property expert ages ago, I never got a satisfactory answer actually, when we look at average house prices or average dwelling prices or average unit prices, are we actually comparing like for like? In other words, when we talk about affordability, if there are more units being built and the housing stock changes shape, then you would expect a unit would be cheaper than a house. So is housing getting any cheaper or is it just the averages going down because the housing proportions are different, right? Yeah, yeah. And I've never had anyone answer it. And the reason I say that is not to poo-poo the whole – the McMansion thing is both real and hackneyed, right?

1:14:26But if you're replacing a weatherboard with a McMansion, yeah, the housing price has gone up. Yeah, construction price has gone up. But what are you really comparing? Are we actually comparing those like for like? And I don't know the answer. I will say, Chachi Petit has just told me because I did it while Andrew was talking. I think it's a result now. National home values last five years to late last year up 47%. According to the ABS, construction costs for the five years to 2026 up 29.5%. So that's a pretty significant gap difference over that five-year period, I would suspect. And look, so it's not – both are up, by the way, and both are up meaningfully.

1:15:00But that's a 20 % percentage point gap. That's enough to suggest it's not just construction costs going up and causing that problem. I haven't gone any further back. J.P. just throwing me these numbers. So it may be much longer or very different if you go any further. I'm not entirely sure. but i think it's but also by the way construction costs only apply to the building the land price increasing is sorry the housing price increases land and the building so you're not even comparing the same base so it's it's complex is the answer uh you'd have to you'd have to really kind of work it out and see what could be see what can be explained or done in some cities melbourne hardly i think melbourne's actually down over the past three years at the moment so almost certainly in melbourne construction costs are outpaced prices now the base effect is at play here too I know I'm doing a lot of it depends, but it really does.

1:15:44It's a very messed thing to try and compare. So you're right that housing costs have gone up. You're right, the housing prices have gone up. I really wonder, and I feel like the old guy shouting at the moon or the back in my day thing, but the size of houses, the number of bedrooms, the amenity of those houses, air conditioning, swimming pool, media room, the square footage has grown phenomenally over the last probably 70 years, I suppose, probably post-war from there to now. And there's no value judgment on that. There is a recognition that we've got to think about what we're actually comparing.

1:16:21So if you did it per square foot, and I don't know the answer to that, and you may be entirely right, questioner, if the per square foot or per square meter cost has gone up massively, that's a different question. If the price of building a house has gone up a lot because we want more from our houses, that's both understandable and completely normal and is that a problem? Well, it is if you want a five-bedroom house with a swimming pool, but if you want a three-bedroom place like I grew up in that was built in 1978, that's a very different, you're just getting something different for your money.

1:16:50So I suspect if my mum's place was knocked down, it's a single-storey, three-bedroom place, lovely house, nice backyard, somewhere to put a five-bedroom, two-storey place in. And they would say, look at the construction costs these days. Again, I'm not making either argument. I don't have the data. I just think it's worth thinking about what we're comparing and making sure, I've already said three ways, where the base effect and the comparisons might be out, composition effect, all that kind of stuff. So probably worth just having a think about that. And then Ram's point about money printing and the post-COVID inflation kind of put everything out of whack anyway.

1:17:20So I would argue, frankly, right now, I don't think any prices have settled. I don't mean settled as it stopped going up. I just mean, I think stuff is so weirdly moving so fast and so significantly. I would argue we might look back in 10 years time when things have settled and realized that there were bumps and this accelerated in these few years, that accelerated in those few years, then it settled down, that equalised. I reckon, and this is a problem with fast rising prices, not only is it bad for all the reasons that are kind of, I'll say ideologically wrong, I don't mean ideologically in a bad way, I just mean, theoretically, okay, is inflation bad for these reasons?

1:17:53Yes. When you get really strong inflation, it just distorts. Inflation is always going to be distorting, as probably what Ram will say, so I'll get in first. But fast, high inflation is just, we can't adjust quickly enough. Can I say it for you? Please. It makes economic calculation extraordinarily difficult. There you go. That's been important. You take a very hard task, which is economic, you know, and then you make it 20 times harder. It's about charging. Yeah. That's, of course, and it's a very natural reaction to kind of go, well, I'm not going to take that risk anymore. Who knows what's going to happen, you know?

1:18:30And perversely, it actually leads to really sort of hedonistic consumption patterns. And it's actually the economists actually put this forward as a good thing. It's like, well, we need it so you can spend. It's like, yeah, but in rates of high inflation, I just buy anything, anything, because saving is punished under that environment. And so now I'm distorting things and I'm actually signaling to producers a demand that's naturally not there, but rationally is kind of there because I just don't want to hold the money. It's like it's so pernicious and damaging and wrong. And I won't go any further, but just I had to interrupt there.

1:19:07But that's the point, though, is that all of us, all of us, even the three-year-olds, I won't say three-year-olds, the lolly shop, you know, we're always trying to make economic calculation. And when they're in periods of great flux, that is much, much, much harder, which tends to dampen any economic activity because it's just too hard. Too hard, too risky, you won't do it. Sorry, mate. Absolutely. No, no, no. You've summarized it beautifully because that's kind of the point. So, yes, construction costs matter. Absolutely. Yes, we hear builders say they can't build for replacement prices. Is that real?

1:19:40Will it continue? I don't know. But, yeah, the calculation difficulty that Ram talked about, and we talk about calculation difficulty, I think it's true. What you also mean by that, I know, is it interrupts markets operating, operating, I'll say efficiently, and not the market or inefficient, just that when you can't do that, you might put off the purchase or you're not sure whether to buy or you don't know if you're a builder, if you want to build. I mean, we saw a whole lot of builders go broke in 2021, 22. Why? Because they did fixed price contracts two years earlier and inflation went nuts.

1:20:14So you've still got the market selling. Insurance prices are like this all the time, by the way. If you think this is just, it is absolutely about the last five years of stupid high inflation. But even if you strip that out, Insurance prices go from really profitable to really unprofitable and back because cycles just do cycle things. And so at some points you say, the insurance will make your fortunes, it's terrible. And other times you say, insurance is losing your money, that's crazy. And then the average is probably somewhere in between. So I would probably zoom out a little bit more. And not saying you're wrong, by the way, not you around about that question.

1:20:42You might be entirely right. I would say that I would feel very uncomfortable drawing any firm conclusions at this point of the last decade just because of everything that's going on. The one thing I just want to say, which is more fundamental, but it's really important. And once you sort of grok this, you just extend to so many different things in this space. I think a lot of us really struggle with the fact that prices change at all. Yeah, yeah, too. And it's like, no, that's their job. Prices are signals. It shows our revealed preferences. All kinds of resources, yep. It tells people what to produce more of and what to produce less of.

1:21:23And yet we treat, we demonize it all of the time. Oh, I don't like that. So I'm going to change it. So what you're doing is that, and when I say the market again, just people doing what they want to do for their own personal, whether it's rational or it doesn't matter. It's their own subjective. I want this. I want the new Malibu Stacey. Don't judge me. Screw you. No one's obliged to be rational. I'm buying it. I don't want it. I mean, all of us do that. And there's nothing wrong with it. All value is subjective. right and and and people are doing things that they feel is right right for them and someone goes all right i don't like that and it's like forgetting that it is the very price the change of the price that that will actually stimulate the response that you're looking for when you come in and distort that it's like we're all speaking english and then you're coming in with a version of esperanto that no one quite understands you know but it's more superior and I think and it needs to be.

1:22:16And it's like, yeah, but now I can't coordinate with this person over here and now it's just like think bad things happen and bad things happen in the sense that we end up getting far less than what we would otherwise be capable of achieving. It's a good thing. You know, it's like the people get really upset for things like, what's a good example? Oh, it's raining and then, you know, all the 7-Elevens put the price of umbrellas up. oh, you know, it's just an outrage. It's a gouge. It's like, no, it's a perfectly rational response to a demand imbalance. That's how we allocate. Look, there's 10 umbrellas.

1:22:54There's 20 people out the door. How do I allocate this? Who wants it the most? That's right. That's how I allocate it, right? And also - Who's prepared to pay the most, yeah. And also, the bloke who makes the umbrellas go, what, people are paying that? Gosh, it only cost me a dollar to make and they're selling for 10. I'm going to crank out a bunch more. High prices are the cure to high prices. And we've got to stop. And the other thing you've got to remember, too, is the economy is not a static thing. It is a process that continually unfolds and changes and reacts. It's a complex, dynamic feedback system.

1:23:27It's not a thing that just sits there. and every single time in this country whether it's the price of petrol or the price of homes or the price of baked beans everything changes and it's oh my god it's the worst thing and it's like well it is if that price change has been artificially created by by mucking around with the very unit that we're trying to coordinate everything through but if it is just happening because of changes in what we can produce and what people perceive to want this is to be celebrated because without that, we just, we can't get, no one person can make a data centre, right?

1:24:02Or a pencil. To make a data centre, or a pencil. To make a data centre, I need tens of thousands of people who have never met, who don't even speak the same language and probably in different countries, you know, and it says I need them to all coordinate. And it's not going to happen because I just have a really good A team of bureaucrats who are going to sit around a table and figure it all out. It's just impossible. We've just got to grow up. We've just got to grow up and recognize it for what it is and stop living in fantasy land here because it's not just a ideological debate that you can have in a university.

1:24:33It's something that impacts all of our lives. The very, very foundational stuff, like food, medicine, housing, all the stuff that we ran. It's why my blood boils, man. It's why I get so passionate about all of this kind of stuff. This is not harmless ideologies that are out there. These are unfounded, no empirical evidence kind of claims that get hand-waved around And then we flow with that, assuming it's true, and then it leads to massive unfairness. It massively disadvantages the poor, advantages the wealthy, and makes us collectively less prosperous. It's like the stakes are high. The stakes are high.

1:25:10We've got to get this stuff right. And being mired in some of this nonsense economic reasoning is just, it's a big deal. I really fail to articulate it but I think it's I think it's a really big deal I think it is I think it is mate we've done a welter of a job getting through almost an hour and a half of podcasts the only thing left to do is for our listeners to go to strawman.com and use the code manga to save 10 % on a strawman membership because well if you're doing this on Monday you're too late if it's Sunday you're listening to this because you should be it's appointment listening jump on strawman.com go to sign up put in the code manga and join Andrew's Band of Merry Men at strawman.com Australia's premier online investment club well said well said chief marketing officer next week buy my book in the meantime have a great weekend we'll see you on Friday full on yeah thanks cheers

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