Growth

Imagine for a moment you have paid off the mortgage on your home that the real estate agent says is worth $500,000 in today’s market. Good news indeed. You are the owner of a substantive if illiquid asset.

A sharp looking fellow in a suit saunters up and tells you that in 10 years time, roughly when you think you would like to downsize, the property will be worth $1 million. Even better news it seems.

Curious, you ask the besuited one a few pointy questions as to how his prediction of near double-digit annual growth in real estate value is possible. He spouts all sorts of market jargon and ends with the undoubted desirability of your suburb.

Of course, you do not believe a word of it. And you don’t need to.

All that matters to you is that property holds its current value until you retire. Half a million is more than enough for the downsize to the country.

A second gentleman in a less impressive suit sheepishly begins a conversation. He says that his numbers are the opposite. In less than a decade the market will stall and then crash. The best scenario is your asset might be worth $200,000.

Again you ask questions. Similar jargon comes back at you only the numbers are not in your favour.

Now this matters because if it is true your retirement plan fails. You ask more questions and pay attention to the answers. This time the evidence needs scrutiny. It is important to know how true this prediction might be, how likely it is to occur, because if house prices do fall you need another plan.

Recently some researchers at the CSIRO, Australia’s $1.3 billion government science and industry research organisation, published findings that the wheat yield potential in Australia has declined by 27% since 1990.

Despite innovation, investment and farmer tenacity, average yields are still at 1990 levels of around 1.74 tons per hectare and that this could fall to 1.55 t ha-1 by 2041.

Again you could ask questions about this evidence. Where did the numbers come from? How can you predict so far into the future? Is it true?

The science is full of jargon too. It is hard to tell whether to believe the numbers or not. And, as you are not a wheat farmer, what difference does it make?

Well, most experts believe we need to increase crop yield by at least 1% per annum across the board to keep up with global demand for food. And Australia accounts for 12% of trade in wheat. So if they go south, then there is a considerable amount to make up everywhere else.

It is also, at the very least, a warning that growth is not a given. It is a desire. And real estate or crop, we should all pay attention to the numbers.


Here is the reference to the research:
Hochman, Zvi, David L. Gobbett, and Heidi Horan. (2017) Climate trends account for stalled wheat yields in Australia since 1990. Global Change Biology.

And the link to the media report on ‘Australia’s wheat yield stalls’ that, not surprisingly, has failed to make headlines.


First published on Medium

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