© Islander Reports
This might be one of the biggest overlooked explanations for why so many Western economies feel stuck despite the official numbers. The same destructive pattern is playing out in the UK, Australia, and New Zealand.
In a healthy economy, when prices for something rise, the market responds by increasing supply. Capital flows in, production ramps up, and things balance out. Simple self-correction that keeps everything stable.
But picture an asset class where supply is basically fixed no matter how much money chases it. Think prime urban land or housing stock in big cities. Flood it with investment, and the only result is higher prices. No new quantity appears to meet the demand.
Let's call it the rentier asset black hole.
It works in clear stages:
1. It keeps growing through accumulation. Rising prices make it look like a better bet, so more capital rushes in, driving prices even higher in a self-reinforcing loop.
2. It distorts all surrounding decisions. Capital that ought to fund productive businesses or infrastructure gets diverted because the risk adjusted returns on housing crush everything else, especially with leverage and tax breaks thrown in.
3. It reaches a point of no return — an event horizon where the usual economic rules stop working the way they should. What used to be diminishing returns to capital flips completely, and the unproductive asset starts offering stronger pull than real growth opportunities.
4. The headline GDP figures and bank balance sheets look decent because they capture the asset inflation and imputed rents, but the missed factories, stalled innovation, and hollowed out real economy stay invisible.
Looking at Canada, in places like the Greater Toronto Area, we've seen housing prices detach completely from wages. Working families struggle while GTA detached homes trade well above the $1 million mark and require 63% of a typical household's income just to service ownership costs. High immigration boosts demand, strict zoning blocks supply, easy mortgage credit treats homes as the ultimate safe asset, and governments celebrate the "wealth effect." Meanwhile, the money that could revive manufacturing, mining, or critical projects sits parked in real estate.
The bill lands squarely on young Canadians choosing between rent and groceries.
The UK has been dealing with this for even longer. London and the South East became the prime example decades ago. As industry declined and capital shifted, housing became the dominant attractor, with London homes selling for over 10.5 times average earnings. The financial sector ballooned by lending against it, while the productive base shrank. Same pattern: strong numbers on paper, but a weakened real economy underneath.
Australia and New Zealand mirror the pattern exactly. Sydney homes command 13.8 times median income, with Melbourne and Auckland locked in the same cycle — exploding prices, a generation largely priced out of ownership, and capital flowing away from businesses that actually create things.
These countries share similar property laws, cultural attitudes toward real estate, and policy incentives that supercharge the cycle.
Leaders across the spectrum have allowed it because rising asset values feel like success, banks get safe collateral, and the benefiting class has influence. But basic economics, geography, and math don't bend to wishful thinking. You can't build a strong, innovative nation when the best capital is endlessly chasing fixed location property instead of creating value.
Time to name this beast and get capital building the future again, before the next generation inherits nothing but rent receipts.
Reader Comments
In Broome Western Australia, a place as remote as the moon almost, (look it up on a map https://www.google.com/maps/place/Broome+WA+6725/@-17.9606458,122.213911,8670m/data=!3m2!1e3!4b1!4m6!3m5!1s0x2c7a2ee57f27b693:0x500f638247a1150!8m2!3d-17.96182!4d122.236998!16zL20vMDEycTZu?entry=ttu&g_ep=EgoyMDI2MDUxMy4wIKXMDSoASAFQAw%3D%3D)
Seven residential lots of land were recently released “The situation peaked with striking reports of locals camping out overnight on the street outside a real estate agent’s office just to secure a block of land” cost of the blocks $200k to $300k for a 700sq m2 block, in 1950 you could buy a block, 2000 sq m2 for $40 (3 weeks wages) Not sure how many average citizens these days earn between $ 600k and $ 900k in three weeks.
The immigration argument is essentially BS.
This info by someone close to the action in Sydney, he signs contracts with major building companies, ATM the contracts are ready to be signed but the participants won’t sign for another 18 months as they have CHOSEN NOT TO BUIlD ANYMORE until they clear the stock on hand, do we hear about this on the news, NO would be the answer, not a whisper.
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How's that? It is relevant in nz. Limited real-estate. More people wanting it. Pushes prices up. That's the logic. And its provable. They've recently limited immigration here and prices are dropping. Coincidence?
It may not be 100% the same in every country, but it sure is here.
Prices dropping because of the economy perhaps, how big are the drops, NZ like here in OZ prices climbed through the roof prior to Covid era, so a correction was probably on the cards.
In NZ The Main Causes: according to statistics.
A massive surge in available houses (hitting 11-year highs), high mortgage interest rates, and broader economic strain (rising unemployment and low migration)
You don’t think the following has even a bit of an impact on the market.
When a first bought my house on a quarter acre in the early 90s it was 80grand nzd. Then in the early 2000s local government decided to reevaluate rate payers properties. What they did was over value them. They use to charge rates based on land value. Now its total property value ie house and land combined. After this happened people felt richer because their equity had grown significantly. It caused a confidence boom.
Then I noticed the rise of the property speculators. Everyone was jumping in on the now property boom generated by this steady increase in property as a great returning investment.
All these things have contributed to the overvalueation of real-estate.
Another thing local govt and maybe govt too did, is limiting the opening up of land for builds. And the cost to get consents to build. This further pushes up property value.
And then there's the govt need for population growth, all pyramid schemes need growth. They do this with immigration, because natural growth is to slow for these fast moving want it now type of person. And because there's a limit on houses, and they're already expensive. The cycle continues. I think personally people should stay in their own countries because at this point it looks like a pyramid scheme scam.
All so don't forget the inflation govt cause by printing money. Hand outs. And bank lending for these properties.
An other point, we live in the NOW generation and have for a while, where they want stuff instantly, not only the home but everything that goes with it, my wife and I lived in a temporary dwelling about a minus 2 star rating :-) for the first 5 years of our marriage,but we were glad to have it, the owners were really good with us.
We owned a block of land 810 m2 (paid $2,300) bought late 60’s, borrowed $ 15k to build the house (mostly myself) in the mid 70’s, still needs some finishing off here and there but that’s the rigour if you’re In construction, you never finish it until you’re ready to sell.
Some more fun facts...
Due to the very poor economic conditions it was impossible to get a loan, we tried every bank in Blacktown (yes thats a real town, a Billion budget these days) finally scored one because of connections.
I was apprenticed in the mid 60's, to give you an idea of luxury, my boss and I used to tile 3 homes a day (true) shows you how much tiling was in each home, mind you he was paid seven Pounds per home or $ 14 in todays money, but 21 Pound for a days work was exceptional money, as an apprentice I got 5 pounds a week, Average male weekly earnings before tax were about 30 pounds a week, he used to drive me hard but I learned a lot he was an excellent tiler.