One of the most entrenched superstitions is that property is a safe and secure asset class that always go up in price over time. It has come to a point that some people believe that property prices never come down. Some people will even cite the trend of the past 10 years to prove the point of this superstition.

But as Nassim Nicholas Taleb said in his book, The Black Swan: The Impact of the Highly Improbable, all you need to prove that not all swans are white is to find a black swan. In the same vein, all we need to prove this superstition false is to come up with examples of the opposite happening. The fact is, history is on our side- with the bursting of the Japanese bubble economy of the 1990s, property prices in Tokyo was said to have collapsed by 70% over the course of the decade. As of today, median house prices in the US has fallen around the order of 15% in one year.

For today’s article, we will draw out another big gun to blast away this superstition. At the beginning of the year, the ABC had a documentary about 350 years of Dutch experience- Dutch history pointing to real estate fall. In that documentary, it reported

The house sugar merchant Cornelis Sasbout built in 1617 at number 150 on Amsterdam’s Herengracht canal tells a cautionary tale about investing in property – prices fluctuate wildly, but are ultimately flat.

In that documentary, when it said “flat” prices, it means “flat” in real terms.

Mind you, the Herengracht is not some piece of forsaken real estate built in the middle of nowhere. It is a prime real estate for over 350 years, as this documentary reported:

Eichholtz says what makes his index stand out from house price histories in other cities is what he calls “constant quality” – the Herengracht has always been prime real estate. The index corrects for rising consumer prices but not wages.

What is the lesson here for Australia? Well, Australia is still sitting on an unprecedented debt bubble. For those who still need convincing, please take a look at Professor Steve Keen’s scary debt charts at Debtwatch No. 25: How much worse can ?It? get? and our commentary at Aussie household debt not as bad as it seems?. When the debt bubble burst eventually, we can be sure the frequently parroted justifications of this superstition (e.g. housing ‘shortage,’ immigration, etc.) will be revealed as hogwash. We would love to see those ‘experts’ who wrote reports that justify this superstition be paraded as clowns when they are proved wrong in due time (see Another faulty analysis: BIS Shrapnel on house prices).

Tags: BIS Shrapnel, debt, Dutch, Herengracht, Nassim Nicholas Taleb, Steve Keen

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