In an interview from Motley Fool Live, recorded on July 7, Brad Dillman, Chief Economist for Cortland, a multifamily real estate investment, development, and management company, discusses a few prominent worldwide trends that give investors a good picture of where global real estate is going.
Brad Dillman: But essentially, low rates coming out of the Great Recession had a similar impact around the world. That’s to say they’ve led to astronomical asset price appreciation, particularly in real estate. You can look at markets like Australia where the cost of living has increased immensely. Parts of Europe, it’s been similar and, of course, the dynamics in China have been noted by many people. Japan’s really been down this road already for some 30 years, where they had their very sizable real estate bubble as I recall. I think it was the emperor’s palace. That area of Tokyo was worth more than the state of California, at least on paper at one point. They’ve been through that rodeo already.
Other parts that are really only experiencing it now with low rates since the Great Recession and their impact. The real key there is how much are these low rates truly a reflection of the underlying economy versus how much are they a result of monetary policy so the economy can be stabilized and governments can prosecute the interests that they have and to the degree that they are deviating from the underlying, say, true demand for the supply demand of a lot of funds and that created distortion and prices based on these interest rates, namely things like radical swings and real estate value or other long-lived fixed income assets. That’s been an important dynamic.
Another one that’s certainly flown below the radar has been the impact of this radical increase in the cost of living, namely in housing, and birth rates globally, which have plummeted over the last 10-15 years. When we look around the world and we see shocking dynamics that from the perspective of somebody who grew up in the ’80s and ’90s are not things that we really would’ve thought would come about one day.
Things like the whole western hemisphere being at replacement birth rate and really only a couple of parts of the world having substantially above replacement birth rates. That’s a really important dynamic to when we think about where exactly is the global economy going, where’s global real estate going? What’s it’s going to mean for how people are going to be consuming housing because that’s been quite the shift over the last 15 years. We’ve seen it here in the U.S. too.