Most people treat real estate crashes as random shocks that nobody could have called. Phillip J. Anderson says they run on a clock that’s roughly 18.6 years long, and that the same clock has been ticking in the United States since the 1800s. He says he called the 2008 crash four years before it happened, and the same book pointed at the next peak: 2026. Here’s how that works:
- It’s a land cycle, not a housing cycle. He says land prices peak first, then copper, then gold, then silver, then oil, then the rest of the commodities, and that the past two years have run in exactly that order.
- America collects every statistic you can think of except the value of its land, so he uses listed homebuilders as his proxy. Toll Brothers and D.R. Horton peaked in 2005, three years ahead of the crash. He says they peaked again in late 2024.
- He didn’t invent the 18.6 years. Homer Hoyt tracked Chicago land sales back to 1832 and found a cycle never shorter than 17 years and never longer than 21. Roy Wenzlick published a book in 1936, at the bottom of the Great Depression, calling a real estate boom that would peak in the early 1970s. He was right.
- U.S. real estate bottomed in 2012. Fourteen years up puts you at 2026, which is why Anderson says he’s spent this stretch getting his own debt down so a bank will love him in 2028 and 2029 instead of today.
Phillip is an Australian researcher and investor, and the author of The Secret Life of Real Estate and Banking. He spent years pulling land records in Melbourne and St. Louis before the internet existed, partly because, as he says, he prefers studying to talking.
His starting point is the law of economic rent. Modern economics recognizes two factors of production, labor and capital. The original economists counted three, and the third one was land. He argues that dropping land out of the model is exactly why so few forecasters see anything coming. His favorite illustration isn’t a chart, it’s street vendors selling The Big Issue who worked out for themselves which corners were worth defending.
We also get into why he thinks “just build more houses” is the wrong answer to affordability, what he watches as warning signs that a top is close, and the policy thread that runs from Canberra’s leasehold land to the Alaska Permanent Fund to Norway’s sovereign wealth fund.
And we talk about the people this actually lands on. A 22-year-old trying to buy his first house in a market where the worst places on the block are $300,000. Developers deciding whether to start a subdivision. Lenders deciding whether to keep writing paper. He has a different answer for each of them.
Links and Resources
- The Secret Life of Real Estate and Banking by Phillip J. Anderson
- Property Share Market Economics w/ Phillip J. Anderson
- The Power In the Land by Fred Harrison
- Case-Shiller U.S. National Home Price Index
- Why An 18.6-Year Market Cycle?
The Cycle Is About Land, Not Houses
This is the distinction that makes the rest of it work, and it’s the one most people skip past.
Anderson’s argument is that economics quietly deleted land from its own model. Today’s textbooks recognize two factors of production, labor and capital. David Ricardo and the economists writing up until roughly the First World War recognized three, and the third was land. Take land out and you lose locational value, which is the thing that actually moves.
His example is deliberately unglamorous. Vendors selling The Big Issue on the street figured out fast that you sell more copies on a busy corner than you do at the top of a hill, and they started defending the good corners. Nobody taught them locational value. They just found it. That behavior, repeated by developers and speculators with a bank behind them, is what he says produces the cycle.
Credit is the accelerant. A bank won’t lend against your car. It will lend against land, once it decides what that land can earn. So the land price and the credit cycle end up chained together, which is why he says the bad recessions are the ones where house prices fall below the mortgages written against them.
The Research He’s Standing On
Anderson didn’t start with the 18.6 years. He inherited it.
There was a man in Chicago named Olcott who recorded every single land transaction in the city from 1832 until the day he died in the 1930s. Homer Hoyt worked through those records and found a Chicago real estate cycle that was never shorter than 17 years and never longer than 21.
Then Anderson flew to St. Louis to read the papers of Roy Wenzlick, an appraiser who ran what may have been the first real economic forecasting service. Wenzlick had researched the cost of a house down to the number of nails in it. In 1936, at the bottom of the Great Depression, he published a book called The Coming Boom in Real Estate for a dollar, and said the peak would arrive in the early 1970s. He was right. Anderson says Wenzlick’s charts also pointed at a 1989 boom and a 1991 recession, both of which landed after Wenzlick died in 1974.
Anderson’s own contribution is bolting the stock market onto the land research. He says that’s the part nobody else does, and it’s where his proxy comes from: if you can’t get American land values, watch the companies whose profits live or die on what they pay for dirt.
What He Says Is Peaking Right Now
The thing that has to peak, in his framing, is land value. Not transaction volume, not construction starts, not mortgage lending. Land.
Since the U.S. doesn’t publish that number, he watches the order of operations instead. Land first, then copper, then gold, then silver, then oil, then commodities. He says the last two years have run in that sequence.
He also watches the listed homebuilders, because the stock market prices in bad news faster than real estate ever will. Analysts who value Toll Brothers and D.R. Horton can see when land has gotten too expensive for those companies to make money on it. Homebuilders peaked in 2005. The crash came in 2008. He says homebuilders peaked again in late 2024 and have been sliding since, and that rising long-bond yields make it worse.
The behavioral tells are less rigorous and more fun. The world’s tallest building, because a tall building only pencils when land is expensive enough to force you upward, and because it gets built on credit. Saudi Arabia’s The Line, which he calls the most idiotic idea ever invented. Copper going berserk, followed by people stealing copper out of churches. And affordability becoming the word of the cycle while the working class starts choosing between rent, gas, and groceries.
Why Building More Homes Doesn’t Fix Affordability
This is the part I keep thinking about.
For most commodities, the solution to high prices is high prices. Copper gets expensive, more copper shows up, the price comes down. Anderson says land and housing do the opposite. The higher the price goes, the harder people hoard it.
Then the cycle turns, and the same people discover they have more space than they need or more debt than they can carry, and the supply they were sitting on comes out all at once. Suddenly everyone says we overbuilt. He points to roughly 900,000 empty houses across the United Kingdom as an example of stock that exists but isn’t in play.
He thinks Airbnb ran the same play in miniature. It raised what an existing property could earn, so prices had to follow. He owns a unit in a Melbourne building of about 100 apartments and says he’s the only one who actually lives there. If rates keep climbing, he expects those owners to find out that carrying costs beat what the property can produce.
His actual solution is one he admits will never be adopted, because it’s a political question and not an economic one. When Australia built Canberra out of sheep paddocks in 1901, the land was leased rather than sold outright, with rent paid to the government yearly in advance. You owned your place, but you couldn’t buy more land than you could afford to hold. He says it killed speculation. He puts the Alaska Permanent Fund and Norway’s sovereign wealth fund in the same family of ideas.
What He’d Actually Do With This
He won’t give financial advice, and he says so on the record. But he’ll tell you what he’s doing.
He’s cashed up, carrying very little debt, and has spent the run-up making himself and his son look excellent to a bank in 2028 and 2029. His read on history is that outright speculators with no business underneath them get hurt worst, operators with real cash flow do fine, and the companies that win are the ones that don’t need to borrow when everybody wants to.
For developers, he’s not saying stop. He’s saying run it deal by deal. If the deal requires betting the house and borrowing everything with no reserves, history says this isn’t the moment. If your balance sheet is solid, you might lock a rate for three years and stress test what a 10% price drop next year does to you. If it still works, he thinks you’re obligated to do the deal, because that’s the business.
For lenders, he has no expectations at all. Banks are happy to give you an umbrella when it’s sunny outside, and as one of the big banks once put it, while the music is playing you have to dance.
And for a first-time buyer staring at $300,000 tear-downs, he’s surprisingly plain about it: get in as best you can. Security of tenure changes how you see everything. Find the run-down one, add the second bedroom, take on a roommate, buy with a family member if you have to (with real legal agreements). Just get in.
Where This Breaks
I pushed on this during the interview, and it’s worth being honest about the gaps.
Homer Hoyt, the researcher this whole thing traces back to, warned in a 1947 speech that a national real estate cycle is really an average of very different local markets, and that there’s no definite time interval between major peaks. Anderson knows that and discounts it. He thinks Hoyt had his own reasons and that Wenzlick’s work held up better. You’re free to weigh that differently.
The core input doesn’t exist in the U.S. Nobody publishes American land values, which is why he’s working through proxies at all. He also says he doesn’t publicly release his own figures.
The country isn’t one market. He says Austin and possibly Florida have already turned while Chicago and San Francisco are still running, so a national date is an average of things that aren’t happening at the same time.
And he’s clear that nobody picks the top, including him. He even allows for a different ending: if AI delivers enough real productivity, we could get a 1970s-style flatline where prices go nowhere for years instead of a crash.
None of that makes the pattern useless. It makes it a lens, not a schedule. And if the lens is even roughly right about credit tightening in 2028, the move it points to is the same one it’s always pointed to: don’t be the most leveraged person in the room right before the music stops. That’s the part of the conversation worth an hour of your time.
Episode Transcript
Editor's note: This transcript has been lightly edited for clarity.
Seth Williams: Hey everybody, how's it going? This is Seth Williams. You're listening to the REtipster podcast. Today, we're exploring a big idea. What if real estate booms and crashes are not random? What if they follow a pattern that investors can study and at least to some degree anticipate? My guest today is Phillip J. Anderson, author of The Secret Life of Real Estate and Banking. Phillip has spent decades studying the connection between land prices, credit, banking, construction, and the broader economy. His central argument is that the United States has experienced a repeating real estate cycle lasting roughly 18.6 years, usually made up of about 14 years of growth, followed by four years of decline and recovery. And it is a fascinating claim, but it also raises some important questions. Why 18.6 years exactly? And what causes this pattern? How consistently has it actually happened this way?
Seth Williams: And what happened during the historical periods that might not have followed this schedule exactly. We're going to explore all that today, along with what this cycle could mean for land investors, homeowners, and anyone making major real estate decisions in the years ahead. Phillip, welcome. How are you doing?
Phillip J. Anderson: Yeah, hi, Seth. It's good to be with you today.
Seth Williams: Yeah, thanks so much for being here. So maybe we start by, you want to just explain how land, banks, and the 18.6-year cycle connect with each other? How does this work?
Phillip J. Anderson: Good question. Let me start by suggesting first that the problem when I do, some of these podcasts and things, and I haven't done many over the years because I prefer studying than talking, but I just sound like another economist forecaster when I start talking about the sort of things that I talk about in my book. But let me just say there is a fundamental law in economics. And this law of economics is to economics what gravity is to science. Now, I've got a pencil here. And if I drop this pencil, nobody on the planet is going to suggest that when I drop it, the pencil goes upwards. We all know that gravity is going to pull it downwards. And anybody that did come out and suggest that it was going to go up, you probably tend to think, well, no, they're not going to be right. Okay, so the law of economic rent is to economics what the law of gravity is to science.
Phillip J. Anderson: Now, explaining this law of economic rent, I think your audience will pick this up immediately, being people in the land market, because the law of economic rent, it really is all about land. And let me put it this way, a very simple and quick example. You may recall, I think it would be some decades ago now, there was, a couple of guys whose names escape me now that had hit upon an idea, which I thought was a really good idea, to put some of the unhoused and homeless people back to work, they began a magazine called The Big Issue. I don't know if you've ever read it, but you can buy it on street corners. And it started in San Francisco, I think. Now, people who live on the streets, they may not be the most educated, but they're very street smart. And they know about how things work and how to survive.
Phillip J. Anderson: And these sellers of The Big Issue were very quick to notice, which is blindingly obvious when you state it, but not so much for other people. You could sell more of The Big Issue, clearly, if you're working on Mission and 24th, than if you could try to sell a big issue copy at the top of Mount Vernon. So the street sellers worked out very quickly where the best locations were, started to defend those locations with bats, knives, guns, and various things. I don't think I really need to tell you that. It's location. That's what it's all about. And economic rent really is locational value. And so the street sellers, they were very quick to start to defend their positions because they knew you could sell more of the magazines and make more money in the best locations. And, heck, you know, that's really about what development, land development, real estate, what it's all about.
Phillip J. Anderson: Now, here's the key takeaway about that point. Economics today only considers there to be two factors of production, labor and capital or business. If you really want to understand the real estate cycle, if you really want to understand that there can actually be a cycle, you have to go back to the original economists. That was David Ricardo and a number of others who, up until about, I guess, about 80, 1890 until about the First World War, they clearly considered and knew that there were three factors of production, land, labor and capital. And this is the key thing. So today's economists, they have completely excluded land, hence locational value, hence economic rent. They've completely excluded that from all their economic thinking and their economic forecasts.
Phillip J. Anderson: Hence, if you're reading some material and these people do not understand about locational value, they will never be able to forecast. And what I do, what I noticed when I was writing my book and started reading David Ricardo and one or two others is that those sellers of the big issue, it actually becomes an observable and forecastable behavior of trying to find the best locations. Now, after that, you can then introduce, of course, which has been a much more pronounced thing since the Second World War, you can then start introducing credit because clearly if you go to a bank, and I'm absolutely certain now this is the same anywhere else in the world, the bank, if you want to borrow some money, the bank is, generally not going to accept your motor vehicle as a pledge for capital and against a mortgage.
Phillip J. Anderson: Clearly, these days they want to see what land you've got, or what it is you're buying. The banks will assess how good the location is and what it can earn, and then you get your loan. So credit has now become an important part of what happens in real estate. And so I think when you start adding together the economic rent, the locational advantage, you start adding together credit, you start putting that into the equation. And what I think nobody does, the behavior of investors chasing that locational value, I found in my book, when I put it in my book, I discovered that lo and behold, there's a cycle. Now, back in 1991 or 1989, roughly, when I was researching this, our family had an important decision to make.
Phillip J. Anderson: We used to run an embroidery company and it was a fairly profitable company, and it was usually profitable in downturns, because in downturns garment manufacturers often put embroidery on their clothes to make it look a bit more expensive when you have to make the price cheaper because it's an effective way to do that. We had an embroidery business, and I was always interested and fascinated how fashion went in a cycle and it seemed the recessions that we'd been through was going in a cycle. And at that time I was reading a book called The Power in the Land by Fred Harrison. I'd recommend anybody read this if you can. It's hard to get now. Fred there was clearly, after having studied a guy called Homer Hoyt, who wrote a fascinating book called 100 Years of Land Values in Chicago, and get this, Seth, this was just amazing to me. There was a guy in Chicago whose surname was Olcott.
Phillip J. Anderson: For his entire life, he kept a record of every single land transaction that happened in Chicago from 1832 up to the day he died, 1920, 30-something. Can you believe that? Now, it's like when I went to London for the first time, on the stations you sometimes find train spotters and plane spotters who stand there all day and record engine numbers, right? I can't imagine anything more boring. But this guy, Olcott, did the recordings, and that enabled Homer Hoyt to then go through and assess all those records. And he found that the city of Chicago, right up until 1932, had a very interesting real estate cycle, never shorter than 17 years, never longer than 21. And he put that in a book. It's a very good book. I urge all your viewers and listeners to actually have a look at some of that research. And so I just followed that up.
Phillip J. Anderson: And me being me, I consider myself a writer and a researcher, but a capitalist at heart. I'm also interested in doing well and making money. I also worked out fairly early on that I'm probably unemployable. You know, I don't really enjoy, like so many Americans, we don't really enjoy, being told what to do and we don't like governments getting in our way all the time. And I found that if I could work out to run my own business, and when I started researching real estate in the U.S. with Homer Hoyt and others, I found that when I updated that research, I found a very clear real estate cycle, 18 to 20 years. I thought, heck, that's going to be interesting. So this could give me a business to run, whilst at the same time I could, you know, enjoy my life and travel and stuff. And it's been the best decision, one of the best decisions I ever made.
Phillip J. Anderson: It's been fantastic, and the result is the book, right? And it's, you know, easily accessible. The book's done quite well. You know, it's been great, really. I've been able to run my life and invest and trade and study the cycle and make real estate investments along the way. And it's been, you know, it's been fantastic to me. I'm very thankful to Homer Hoyt and Fred Harrison for having written their research. I thought I should update it and do my own.
Seth Williams: You mentioned Homer Hoyt. I was doing a little bit of research before we got on this call. You might even be familiar with this. Apparently, back in 1947, in a speech to the American Finance Association, he warned that a national real estate cycle is an averaging of very different local markets. And he specifically wrote that there is no definite time interval between major peaks. And he even kind of differentiated between Chicago's peaks and Los Angeles peaks and other random cities in the U.S. like Newark, New York, that kind of thing. And they're kind of all over the place. I'm sure you're familiar with this. So like when we're talking about these cycles and the peaks and the valleys and all this, are we talking about like on a city per city basis or like just the U.S. or the entire world?
Phillip J. Anderson: Very interesting follow up question. I think you followed up like that. And once I got going with the research and various things, I came across further, some work out of St. Louis by a guy called Roy Wenzlick. And actually, that's where I went to the U.S. for the very first time. I actually was in St. Louis. I went there to research Roy Wenzlick. Now, Seth, you know, talking to young people these days, none of them are able to imagine life before a mobile phone, before the internet. Now, I was doing this, you know, in Melbourne, Australia, you know, a real, I mean, you know, three million people live in Melbourne, but it's a backwater compared to some American cities, right? Not a lot happens here. So I'd have to go to the Melbourne Public Library. I'd then have to talk, they'd have to talk to the U.S. Library of Congress. They'd get a book, they'd send it out, I'd have to send it back.
Phillip J. Anderson: Sometimes they might have it on microfiche. And I'm looking at some pretty obscure statistics, right, not stuff that everybody looks at every day. And lo and behold, this guy, Roy Wenzlick. Roy Wenzlick, he was an appraiser, but he was probably the first guy that ran an economic forecasting service. And to my eternal credit, I'm so grateful that I was able to sit in the University of Missouri, Thomas Jefferson Library. And when Mr. Wenzlick passed away, all his material was donated to that library. And here I was sitting in a fairly nondescript but very nice part of St. Louis in the library there in a fairly big room that had every piece of research that he'd ever done. He had researched the cost of a house down to how many nails a house takes to build it. So I thought, okay, this is interesting. And he found the same thing in St. Louis, about an average 18 to 20-year cycle.
Phillip J. Anderson: He also found roughly the same, never below 17, never more than 21. But his research was really, really well done. It wasn't just based on titles and stuff. He was actually doing a whole heap of stuff all about housing. Now, the interesting part of what he had to say, he wrote a book called The Coming Boom in Real Estate, which was released in 1936 for a dollar. Now, picture being in the absolute throes and the bottom of the Great Depression, perhaps the worst depression the U.S. had ever seen. And he puts out a book saying a boom in real estate is coming. And he said that boom would arrive, the peak would arrive in the early 1970s. And he was absolutely right. So I swapped. I started doing research from Roy Wenzlick. And Roy Wenzlick had a very interesting chart. Some of his research was just incredible, suggesting that the boom after that, after 1974, would be 1989.
Phillip J. Anderson: The recession would be 1991. Now, he passed away in 1974. Absolutely right. So I thought, Okay, that's enough for me. Time to update that, put it forward. So I discounted what Homer Hoyt had to say. I felt there may have been some... He may have had his own reasons why he put that forward, that perhaps the cycle wasn't so obvious. He also said, Homer Hoyt also said that the cycle was probably only applicable to old-style cities. He said it might have, but with all the supposed new technology that was happening in the 1970s, this thing, it might distort various cycles. But Roy Wenzlick was proved correct, and that's where I went from there. The cycle is still in existence. There's absolutely no doubt about it. And we're coming into a peak now.
Seth Williams: I mean, it seems like as in much of life, whenever there are rules, there are exceptions to the rule, like situations where it doesn't apply or it's not actually how it works. And I think of the post-World War II cycle went for what, like over 40 years or something like that? Like it was 1925 and then it wasn't until sometime in the 70s when it hit. Why did that happen? What was true in that situation and how do we look at the world today? Could there be anything happening now that would make it different than the usual 18-year cycle?
Phillip J. Anderson: Well, it was the Second World War. It didn't stop the cycle, but in the sense of, with that Second World War, that was really the first one that involved, that brought America into the whole world scene. Governments do a very important thing once World War, you know, into the Second World War and then during the Second World War, governments do a very important thing. They prohibit speculation. All governments around the world, they started to put price caps on commodities. They then start to, the war has to be paid for, so they introduce war bonds. And advertising campaigns are undertaken to then get the public to buy the war bonds. And I'm sure you'd have seen that in history. They get all the pretty girls and the fabulous comedians that come out and say, you've got to support your country and buy the war bonds and blah, blah, and on it goes.
Phillip J. Anderson: That soaks up all the money, all the credit. In fact, credit will probably sort of stop because the government needs the credit to make the armaments. So speculation can't happen. So you can't get the boom. And if you can't get the boom, you won't get a bust. But if you have a look at, if you compare U.S. real estate prices both nominally and in real terms, when you used the real terms through the 1930s up to 1955, it was very clear that the real price of land peaked and then came down. The wartime inflation drove the nominal prices up, but there was still a very clear cycle. But the public would never have seen it because they're interested in real estate prices in nominal terms, taking account of inflation. So it was never really seen like that. But the cycle is still there. It was still there. You can get the low point at 1955. It kicks off from there.
Seth Williams: Yeah, and it is quite fascinating. I mean, you look like way back in history, starting in like the early 1800s, 1818, 1836, 1854, 1872, 1890. I mean, it's like 18 years, 18 years, 18 years. But the thing is, like the world has changed a lot over the decades. Like, why does this keep happening with such predictability?
Phillip J. Anderson: Well, first up, the behavior of the individual is concerned, it's still the same. Let me give you an example of that. In the 1860s, when all of the speculators were touting real estate, they'd ride through the city on horseback. Then in the 1890s and going forward into the early 1900s, real estate agents worked out that you could use the telephone to spruik real estate. And so they looked up, they created, I think then, the telephone book and they started working out the phone numbers of wealthy individuals. How to contact them up to today, it was all done through the internet and then it's mobile phones and basically the behavior is the same. The tech and the electronic, it's different, but the procedures and stuff are the same. So we're still speculating. We're still developing real estate. The process is the same. Now you still need a bank loan to do it. You still need to get credit.
Phillip J. Anderson: And so the behavior is the same. So it's not going to change. It's not going to change the real estate cycle, at least it hasn't so far. The only thing that's slightly interrupted it is the world war.
Seth Williams: Just to be clear, when we're talking about land values, do we mean specifically like vacant land or do we mean like housing as well?
Phillip J. Anderson: No, there's two separate calculations. When I was trying to research the book, you'll notice in, I think it's chapter 18, I had to use proxies for American real estate in the sense that America collects absolutely every statistic you can think of, but doesn't collect the value of its land. Now, there's a political equation in that, which perhaps we can delve into. But I looked at Australia, and sometimes I wonder whether you're born in the right place at the right time. In Melbourne, Australia, local government here in Melbourne, or in Victoria, the state, and some parts of Australia, is financed by what we call a site rate. In other words, a charge on the land. This is not the building, it's a charge on the land. So Melbourne is a city divided into quite a number of local government councils. They are required in order to calculate the amount that the local government needs to collect.
Phillip J. Anderson: They're required to value the land. So from the very foundations of Australia, we've calculated our land value. So that helped in discovering how important it is. And I was able to note that there were some councils in Melbourne that would collect their rates based on only the land value. There were some councils that would collect their rates on the combined value of the house and the land. Now, some of those councils sat side by side, which meant I had the ability to have a look at those valuations and determine if there was an economic effect of collecting rates based on land, or collecting rates based on the value of the land and the building. Now, it didn't affect the total values. It was only the percentage applied to the land that you owned. So the amount collected was the same.
Phillip J. Anderson: And I was able to find that if you based the collection of the rates only on the land value, you've got higher economic activity. And so this was able to help me determine that you did actually need to work out the land value. Now, since the United States doesn't do that, but it has changed now because one of the American researchers, quite famous, name escapes me, he did put together a land value right around America. His name will come back to me, Shiller, Robert Shiller. I didn't have the legacy of that when I put my book together, but now people do. And of course now you've got Zillow and other places where you can start looking at the land value. It is the land value. I can, because I think what I'm best known for, which nobody else actually seems to do, my book combines the stock market with real estate. And you put the two together and you can get a cycle.
Phillip J. Anderson: And so I was able to look because I'm known for my land research, but actually my greatest interest is the stock market. And so I was able to use a proxy for U.S. land value. You can use the listed housing builders in the United States like Toll and D.R. Horton and others. You can use them because they deal in land. You can use them as a proxy for the real estate market, for the land market. So that's what I did looking at my book. So you can put those two things together.
Seth Williams: So when you say other countries collect land values, but America doesn't or didn't, so what exactly do you mean by that? You mean like somebody in the government is keeping track of this?
Phillip J. Anderson: It's the politics. Land doesn't depreciate. So if you have on your balance sheet land, you can't get a tax depreciation for it. So the big and powerful in the United States, they don't want that figure. They don't want just the land figure. They just want the total so that then you can overstate, overstate the building and understate the land, and you get a bigger tax deduction. Yes? Heavily political. So hence, land value is never going to be collected in the United States.
Seth Williams: Well, it's really interesting when you talk about the value of land, and I think any land investor can relate to this. It can be very difficult to get an objective value, like this is what it's worth. I mean, it might be worth more to a developer than it would be to an individual buyer, or depending on the different uses, I mean, the values can be all over the place. Or there could be like one person on earth who would pay top dollar for a specific property, but nobody else cares about it. So how do you actually know what the value is?
Phillip J. Anderson: That's a fair question. I should make two points about that. First up, as I'm sure you would know, the United States is a big place, right? When I traveled through the U.S., one of the amazing things I found is, that there really are very clearly 50 different states in the United States. Every state seems to be different to the other. So it's not an homogenous place. And clearly, you can't come along and say, and I do try to stress this, all of the United States is going to peak all at the same time. It's not going to happen. There's going to be clear differences already in San Francisco and California. There's clear AI buildouts and tech, and this will affect house prices and everything else. Clearly, as well in sparse places like Arizona and others, and say in Denver, because there's so much land available, you can tend to see quite a big, huge boom and then a bust.
Phillip J. Anderson: And because there's still so much land, and certainly down towards El Paso as well, lots of stuff gets platted. It can take longer for those cities to recover because all those platted lands have to be absorbed. San Francisco often recovers first because it's surrounded by water. New York the same. So the land tends to be compressed and limited in scope. So once you get my observations of an 18 to 20 year, 18.6 year real estate cycle, you then have to be smart enough to then localize it to your area and have a look what might be happening. The second point, remind me of the question so I can get to my second point.
Seth Williams: I was just getting at this idea that land value can be a very difficult thing to objectively know.
Phillip J. Anderson: Yes. This is the common perception. But I happen to think, it's never been done anywhere, but I happen to think it would be pretty easy to ascertain some sort of value. I would simply say that if I was a local government area or a state, even federal, I would leave it to the owner to decide what the value is with just one caveat. The local area has the right to buy that off you at that value, should it wish. And I think this would keep values roughly honest because they're clearly, they're not going to understate it too much. You know, of course, they'll never overstate it, but that would give you some sort of reasonable balance to say it's probably, values done by the individual person would probably be 10, 15% under what it's really worth. But I think that would be reasonably acceptable for most governments if they want to get a basis on what it's really worth.
Seth Williams: So yeah, interesting. I never thought about that.
Phillip J. Anderson: I think most people would, they would never understate it. They wouldn't overstate it. You get some sort of rough approximate there. And then of course, you know, it's not popular because you wouldn't need appraisers, you wouldn't need valuers, but I think you'd get a rough idea. I think it could be done.
Seth Williams: I mean, I can think of outliers there, like say if somebody is a billionaire and they have some property that was passed down to them from generations and like for them for it to actually be worth it, they might state some crazy price or another person who's like just totally apathetic. They don't care about their property. Like pay me 50 bucks and you can have it. Like that's kind of an outlier too. But when you look at everybody and average it all out, it seems like it probably would find some equilibrium there.
Phillip J. Anderson: Yes, I think so. And after all, the owner, they have a reasonable idea what it's worth. Most developers have a reasonable idea. They make that decision every day. Part of the business of being a real estate developer, part of the secret is to not overpay for the deal. So they know, they roughly know.
Seth Williams: Now, you had predicted the 2008 crash, the one that almost nobody saw coming four years before it happened. Is that correct?
Phillip J. Anderson: Yes, that's in my book.
Seth Williams: So I think you've also said somewhere that the real estate cycle is going to peak around 2026. So like, are we there right now? Or like, another question maybe might be like, what exactly must peak? Is it national home prices or land prices or transaction volume or construction starts or mortgage lending? Like what exactly is peaking?
Phillip J. Anderson: It's land value that has to peak. And that's it, really. And I can tell you since 1908, that cycle's been almost year-perfect. You know, I don't publicly release the figures, but I've got them. I think we're on track again. Here's where one of the advantages I have, knowing more about the stock market and just the real estate only, where I think real estate developers would do themselves a great favor by trying to understand the stock market. Generally, in history, at the peak, it's land prices that peak first, or let's call it real estate, but it's generally land. They peak first. At the bottoms, it's the stock market that bottoms first, and real estate that bottoms last. Now, if you think about it, that makes some sense. It's practical in the sense that stocks are much easier to transact. They price in information far quicker than you can do that with real estate.
Phillip J. Anderson: Plus as well, real estate people are very loath to lower values when it's on for sale until some event forces them to do so. So that's the advantage, I think, of knowing real estate as well as the stock market. You can also see that since a long time now, certainly the last century and a half. And this doesn't matter whether you've got governments in debt, governments got no debt. It doesn't matter whether there's inflation or non-inflation. Land price peaks first. Copper prices peak next. Then gold, then silver, then oil, then commodities. Now, if you study my book carefully, I show that. What's happened the last year and a half, last two years, has been precisely in that order. Since we don't always have the land prices and the land values, again, we go back to the stock market.
Phillip J. Anderson: If you've got any really keen students there and viewers and things, go back and have a look what happened between 2004 and 2007. Listed home buyers, listed home builders, Toll Brothers, D.R. Horton and a number of others, they peak well before the stock market. They peak before land does. Again, this would make sense because people in the stock market, the professionals, the managers, the buyers and sellers of the stocks, the people that work for stockbrokers, they're usually very good at what they do. And the American stock market in and of itself is very good at forecasting earnings. And so if you think about what house builders do, the stock market will, the people who value listed home builders, they'll know when it's becoming harder and harder for those companies to make a profit, because land price is too high. And homebuilders peaked in 2005, yes?
Phillip J. Anderson: So homebuilders at the moment have peaked in 2024, late 2024, and their prices are declining. Why would prices be declining? Because those people who understand valuations, land price is too high for them. Not only that, we've got American interest rates starting to go up, certainly the long bond, which determines what the mortgage rate is. So this is where, as developers, you should understand what the stock market tells you in advance. Yes, and that's the power of my book, really. And Seth, nobody else in the world does this. I'm the only person that looks at it. Don't get me wrong, I'm no smarter than anybody else and the stock market is full of, certainly in America, very, very smart people, but most of them won't admit of a cycle. So I get all their figures and statistics and I just say, well, what happened in the past? I think there's a very clear real estate cycle.
Phillip J. Anderson: I look at what's happening now and over on top of that, I look at the cycle and where we are. And where we are at the moment is the stuff happening at the moment points to a likely repeat. Can I guarantee that? No, you know, I don't have a crystal ball here that I gaze into every day. It's more, it's just maths and numbers and a bit of knowledge. So what I see is suggesting that, you know, we're into the peak. Now, my book that came out in 2008, I said we'd get another peak in 2026 of land price and here we are. That doesn't mean, I am expecting land price in the United States to peak this year and I think we're on track for that. But America is not an homogenous place. So there'll be other outliers. It seems to me like Austin and some places have already peaked and they're on the way down. Florida might be the same now, but there are other places that are still going on.
Phillip J. Anderson: So, you know, like Chicago and San Francisco and places like that, right? So back to your early point that, you know, cities are a bit different. So you can't take this, you can't just apply it without a bit of thought. But it looks like generally America, taken all at once, may be peaking. And we'll know soon enough if interest rates keep rising, you know, because that spells trouble for everybody.
Seth Williams: Now, when you're mentioning there the price of copper peaking and gold peaking and commodities peaking, there are different charts we can go to look at to objectively know what those prices are right now and when they peaked and all this stuff. But when you say land values peak, and I'm assuming you mean like at a national level, where does that data come from? Like, is there some chart somewhere that tells us, yep, here's land values in the U.S., here's where they peaked. Like, how do we really know that?
Phillip J. Anderson: Well, now you can go to the Case-Shiller Index and have a look at that, which will be instructive to have a look at. But you do have to strip out the nominal and real if you can. I'd also encourage people, you know, I have a weekly newsletter that we put out that people, anybody can sign up for that. It's free. And then once you sign up, you can send in some questions and I'll be able to point some of your viewers and listeners in the right direction about what they can do next. So that's another avenue. So it's difficult. Land values in the United States and most places around the world for political reasons isn't wanted to be known. So it's hard, but go back to the listed developers, who deal only exclusively in land. Their profits are directly affected by land price and how much they pay. So you can get a proxy.
Phillip J. Anderson: And if you can then get knowledge of the real estate cycle, especially out of my book, I'm sure you'll get enough smarts to be able to put all that together.
Seth Williams: When you talk about the Case-Shiller Index, do you mean the U.S. National Home Price Index? Is that what you're referring to, but you'd have to strip out the land value from that?
Phillip J. Anderson: I don't think you can do that per se, but it's been a while since I looked at it. But see what Case-Shiller himself, see what they say about it. I think they measure just land values now. They may be able to strip out what the house is worth, but I'd have to double check that. But Case-Shiller is the place to start. Yeah.
Seth Williams: I will look that up if I can find it. I'll include links to that in the show notes for this episode. It's retipster.com forward slash 289. I'm also going to include a link to Phillip's book and also his website where you can sign up for his email list if you want to check that out and stay up to date with what he's got going on. So when we say like economic recession, is that necessarily the same thing as a real estate recession or could one be going up while the other one's going down? Do they function independently of each other?
Phillip J. Anderson: That's a good question too. I stress that the rough 18 to 20 year cycle is a land cycle, and a land-price-led recession is different to what might be considered an economic recession. Best way to look at this is going back to 2001 when the U.S. had a recession. That was in the dot-com days when prices of internet stocks absolutely tanked. It caused a minor recession, but land prices kept going up. It's when you get a recession which is led by land prices and effectively house prices, what you might call residential particularly, because that's what most people have got their money in. When those prices start declining, and then the prices of the home start to go below the values of the mortgages outstanding at banks. That's when banks have a big problem. It's a credit problem. That's when you get a far more serious recession than otherwise.
Phillip J. Anderson: Now, if you go back to certainly 1955 and you happen to have a look at the Fed data on recessions, if you stripped out some of the normal recessions and simply judged it by looking at when a land price recession was, 2008, 1991, 1974, and so on, you'll see the clear pattern. And they're worse, they're worse than the others. And so that's what I think we've got ahead of us. So we just wait and see now.
Seth Williams: I heard you say in one of your videos that the U.S. government and apparently other governments as well think that the solution to home affordability and just the crisis around that is to build more homes. But you thought that was wrong. So if that's true, what is the solution? Like what actually drives home prices up or down?
Phillip J. Anderson: Well, again, this gets back to a little bit of psychology. And I'll give you a practical example of what I see around me. I do still keep a sort of like a pied-à-terre, a pad in Melbourne when I go back. You know, I've got retirement age now, so my stage of life is more about unwinding than trying to start any new stuff. But I do have a son to think about, so I've been busy passing on what I can. I bought a place in his name and my name just, sort of like, about half a mile outside the CBD of Melbourne. It's a lovely little place. But it's a nice new build, well done by a respectable, well-known developer. So I thought that was all right. And I'm on the second floor. I've got a nice view, but I'm the only one who lives there. So the majority of places, I think there's about 100 in the complex. I would say the majority went on there, let out through Airbnb.
Phillip J. Anderson: Now, the whole Airbnb concept, Airbnb, when it originally started, was an interesting concept in 2010. It immediately allowed earnings to increase on an existing property, which meant eventually prices had to go up. Now we've got to the stage where I think the reverse is going to happen. There are so many places now with Airbnb, and the place I'm in, there's nobody living there. If interest rates keep going up, then those people that own an Airbnb and trying to let it out, if they're mortgaged to it, then costs will eventually overwhelm what you can achieve. And here's the psychological part. People will discover, they do all the time discover in a downturn that they've got more space than they need, or they're too high in debt, over-indebted, whatever the case might be.
Phillip J. Anderson: Suddenly they find stuff, they find they can put their existing places to far better use and they start offloading surplus stuff. And so I have never agreed with this concept that we've overbuilt or underbuilt. It's just that the behavior in the cycle causes the investors over the course of the cycle to hoard what they've got. And when you think about it, say, copper, rare earths, those sort of things, the solution to high prices is high prices. So the higher the copper price goes, eventually it is solved by more supply going on. This doesn't apply to land and housing. The higher the price goes, the more we hoard it. And so if, when the real estate cycle turns, the people who are most in debt, will discover they've got to do some selling, this creates more surplus. Suddenly, people start talking about that we've built too much, not too little.
Phillip J. Anderson: And so this happens every real estate cycle downturn. It's never been any different.
Seth Williams: That's fascinating. It's very interesting. I remember hearing a, I don't know if this is true or if somebody's made this up, but I remember hearing back in around 2010, this statistic that in the U.S., for every one homeless person, there were five empty houses somewhere, which sounds like a crazy number. That's why I'm not sure if that's true. But the point is, why is it that there was such an oversupply then and then now there's this mysterious undersupply? Like, really? Like, are there really that many more people or is it just people hoarding stuff? I never heard it said quite like you just did, where the solution to high prices is high prices. But that makes sense.
Phillip J. Anderson: Yes. And it's credit that will determine eventually people's liquidity on the subject. I know in the United Kingdom, there are about 900,000 empty houses right throughout those four countries, which is a lot.
Seth Williams: Is there something the government can or should do to impact this? Or does the market just kind of figure it out over time? And that's where this 18-year cycle always comes from.
Phillip J. Anderson: Well, the cycle is based on the enclosure of the land rent, just exactly what those big issue sellers discovered. And the downturn of the 1890s was so serious right around the world. But particularly in Australia. After 1893 and into 1900, there was only one bank that survived in all of Australia. So in those days, if the bank went under and you had your money in it, you lost your money. It was gone. You didn't get it back. You had to start over again. So serious nature, right? It was at that particular time in Australia that Australia did what the United States did with its 12 states. In about, after 1774 and into 1800, the states decided to merge and created a federal government. And as you would know, in 1800, the federal government started selling off the collected land of the states, both to fund itself and create a stable federal government. Australia did the same.
Phillip J. Anderson: In 1901, when Australia federated, the politicians in Australia, they had lost so much money and Australians had done so badly. When they created the capital city of Canberra, they decided in the capital city, because the capital city was created out of nothing. It was just basically sheep farms when they established that capital city. They decided that they would not allow speculators into the city, so the land was leased. So if you decided to buy land in Canberra, you bought it, it was yours to own, it was done under freehold system so you had rights, nobody could take it from you, nobody could steal it from you, but your ownership was conditional on paying a rate, rent. You could say land tax. It wasn't a tax, really. It was just a leasehold payment for possession and ownership, which meant that you had to pay the rent of that land up front to the government every year in advance.
Phillip J. Anderson: And it stopped the speculation. It also meant that nobody could buy more land than they can afford to own. So the solution to the real estate cycle is very simple, but it'll never be adopted because it's a political question, not an economic question. And for anybody that goes out and buys my book, and I know this from feedback, I've been told on my book that it's actually better to read the book backwards, start at the last chapter and work forwards because then you can apply all the principles to the history that you read from chapters 1 through 11, which is fair enough. But I know from feedback I've had from a number of people who've contacted me over the years, after they get to about 16 or 17, they get, after I explain what I've just put through, they get an aha moment where they really begin to see that it's behavior more than anything else.
Phillip J. Anderson: And I can tell you that they've all come back and said to me, Phil, I've just become such a better investor having understood about economic rent. Now, Seth, I didn't write my book for political change. I wrote it to understand the system and I wrote it to make myself a better investor. People get to see the politics of it when you work your way through it. But that wasn't me. I just thought I wanted my own lifestyle and various things. And so I tried to get an understanding of it. But once you get that aha moment, you begin to realize why it's important not to overpay for land because then you're overbidding up the earnings of it. And the price of land is really just 20 times the earnings. It's just a capitalization rate. Sometimes it's more depending on whether you can get credit. Sometimes it's less in a recession.
Phillip J. Anderson: And if you can overlay the knowledge of some sort of real estate cycle on top of that, and especially for younger people starting out, I think, and it's certainly given me a tremendous advantage in how and where I invest and why. And so I came to learn, and as our family learned in 1991, there are some times in life where you should not bet everything on the house and borrow as much as you can. And I think one of those times is right now. There are other times if you've managed to have a bit of cash, and 1991 was one of those times, 2010, 2011 was one of those times, where you could be a bit more adventurous and risk-taking if you happen to know what the cycle is and what it means. And that's been a fantastic advantage for me and my subscribers over the years, and I've had some subscribers to my service that have done fantastically well.
Phillip J. Anderson: You know, I've had several subscribers who bought hundreds of places in 2011 and 2012 in the U.S. and around. You have to be a little careful, obviously, with back taxes and various things. But if you know what you're doing and you live there, I think, I know some people like myself, we did very well.
Seth Williams: When you say subscribers to your service, so what exactly is your service?
Phillip J. Anderson: People want to get the weekly newsletter I put out. That's all free, but you can upgrade from there if people want, whereby I put out some information. I show people how to interpret the cycle. I try to guide people as to where I think we are and the sort of behavior that you should adopt. So if people wanted to learn about it themselves and shortcut the work that you have to do and start to get, it's not advice, but it's just a bit extra knowledge on how the cycle is going and interpreting page 360 of my book where I put the cycle in a clock form. Yeah, that's the sort of thing that people can do. It just speeds up what you can learn.
Seth Williams: Again, I'll have links to that stuff in the show notes, retipster.com forward slash 289. Speaking of how to behave, depending on where we're at in the cycle, if we're in 2026, if we're at the peak or near the peak, what do we do at this point? Should investors stop buying near the end of the cycle or should they just demand larger margins and use less leverage? Or how exactly should we behave based on where we're at right now?
Phillip J. Anderson: Yes, again, I'm not, certainly not in Australia and England and other places. It's a bit more free in the United States, but I'm not really permitted to give financial advice.
Seth Williams: But maybe another question might be like, how do you invest your money? Like, what are you doing differently based on where you think we're at right now?
Phillip J. Anderson: Again, I just do that by having a bit of a look at history. Now, I think there's sort of two ways to look at this. We've now had 14 years up since 2012, and this is eminently verifiable on the Case-Shiller Index and any index you might want to look at. U.S. real estate bottomed in 2012. It's very clear on any chart. And my book said we'd get 14 years up of rising prices on average and then 14 years down. We've now had 14 years up of rising prices. That, I think, brings us to a peak. If the peak from here, if we turned over, then history suggests that, and I show this in my book, every single historical chapter, the people who are just outright speculators and don't have any solid business behind them, they usually fare the worst.
Phillip J. Anderson: And people who've got a solid business, in other words, they're generating continual cash flow, and then manage to save that cash flow as you go forward, they usually do quite well. The people that do best, and you're going to find this in the stock market soon, the companies that do best are those that have a strong balance sheet that over coming years, certainly into 2028, don't have a need to borrow a great deal of money. And so I think the best thing that people can do, and this is what I've tried to do, I've tried to make myself and my son, I've tried to make ourselves look incredibly good for banks in 2028, 2029, such that I could walk into a bank and say, I'd like to borrow some money. That's essentially what I've tried to do going into 2026. I have achieved that. I've got very little debt outstanding now. You always have to have a little bit, but it's not a lot.
Phillip J. Anderson: And I'm pretty much cashed up. All my subscribers, they've seen historically what they think is coming. And so that's generally the procedure from here. Now, this is why it's been fascinating to me to watch since I became aware of stuff when I was about 12. It's been so fascinating to me to watch Warren Buffett. I think he has been probably without doubt the best exponent of cashing up when you need to cash up and then buying when absolutely there's blood on the streets. So I think you could do worse than study a little bit of Warren Buffett. And you can't copy him directly because he runs a slightly different business. It's based on insurance returns and everything else. And that's not so easy to copy these days. But as a general rule, Warren Buffett was very clear with himself. When the stock market reached a set indicator of some 200-something percent of GDP, he started cashing up.
Phillip J. Anderson: And that's been very reliable over as long as the stock market's been with us. And hats off to him. He's clearly demonstrated how you can do that in a cyclical basis. He hasn't by any means always been right, but his big calls have been... Big calls, and they've been right.
Seth Williams: I guess the key, though, is to cash up before everything crashes, right? So you have to have some foresight.
Phillip J. Anderson: Yeah, nobody can pick the top, least of all me. But there are, without question, there are certain behaviors that history tells you, warning signs of a top coming. And they've been pretty easy to see so far. First up, the world's tallest building. Now, when you think about it, a tall building, it gets built, it's on credit. The higher the land price is, the taller you have to make the building, to make it work. And we've seen some pretty tall buildings coming up. You had this ludicrous thing put together in Saudi Arabia, what they called The Line, which was just the most idiotic idea that had ever been invented. Now that comes together in the second half of the cycle. You've got commodity prices. Copper usually goes berserk for a while. And so then you start to see people behaving as they do. They start pinching copper from churches and all sorts of other places.
Phillip J. Anderson: That's telling you that prices are too high. Various bits of behavior like that can be warning signs of something impending. It isn't by any stretch of the imagination going to tell you the day of the top. You know, if I knew that, I'd have 72 virgins in the Caribbean catering to my every whim and clearly I haven't. So I'm not suggesting that calculating a top like that, but you can see behaviors. Now, also, the other really big giveaway, and if you've lived through 2007, 2008, and if you lived through the 1987, 88, 89, certainly, the big question becomes affordability. It's never always quite explained that way. This cycle, affordability is the word that comes up. But back in 2007, 2006, all the rage was Paris Hilton. She was in all the tabloids, not just tabloids, she was in all of the burgeoning social media at the time. And that was disguising what people should have been looking at.
Phillip J. Anderson: And what they should have been looking at back then was the working class start having trouble. They start being unable to afford some of their basics, rent, car, gas, those sort of basic things. The price of groceries start getting unaffordable. So those sort of the working class start having to make decisions about what they're going to do. Do they downsize? Do they sell their car to pay the rent? These sorts of things. Now, I think, and I don't live in the U.S. these days and I can't prove it, but based on what I read, I think more and more people are starting to have problems. And so I think the issues are there. Now, of course, on the other side, you've got the whole of the United States, America. It's a fantastically capable and inventive place. And you've now got some of the AI stuff happening. And AI is going to be transformative. There's no question about it.
Phillip J. Anderson: So will the U.S. be able to grow AI such that it can provide productive ability and large growth figures, such that you'll be able to cope with rising interest rates and higher earnings on growth and stuff? That's possible. So you could get a situation where it might end up being a bit like the 1970s, where house prices, they flatline for years, perhaps even a decade where you just don't get any growth there whilst we absorb military costs and, huge, massive AI lending and various things. That's possible too. You're people on the ground. You have to make decisions about that and what you think and stuff. And so you go ahead and you read my book, and you have a look at what the cycles are, and you see what you're seeing. And then after that, you've got to make a business decision. What do you do? So that's where you've got to get a bit of historical knowledge and get yourself up to date.
Seth Williams: You talk about this idea called the winner's curse, which, if I was following right, is basically the person who buys at the most expensive point, right before everything crashes and the bottom falls out. And it reminds me of this conversation I was having with a 22-year-old guy about a year or so ago. He was talking about how him and his fiancee were trying to buy a house, but they just couldn't find anything in the city we live in. Like just the worst crack houses are like $300,000, just crazy stuff. And I think about somebody like that. What are they supposed to do? Like, do they just rent instead? Or do they just like buy a cheap manufactured home? Or if you need a place to live and the prices just are what they are, and if you're not like a savvy real estate investor who knows how to hunt out cheap deals, then what should they do exactly?
Phillip J. Anderson: Yes, that's very difficult. Very, very difficult. I get that question quite a bit. And my approach to that is really, if it's your first place, if you've got to find somewhere to live, clearly the overriding factor in all of this is stability and have a place where you can be feeling safe, and you can start to make some important decisions that may in fact be life-changing. So I've always said if it's your first place, I mean, you just get into the market as best you can. Now, this is where you can be a little bit perhaps street smart with it. Perhaps you can find a place that might be a little bit run down. Clearly, I know in the United States, in some cities, you can get some places that are run down. You know, I bought and sold some places in London where I had to wipe my feet on the way out, not the way in. So I know there are some crap joints around.
Phillip J. Anderson: So avoid those perhaps, but do your best to get into the market and just get in. But there are things that you can do that you can think of. Perhaps you could find a place that might have one bedroom that you could perhaps somehow redesign a little bit and make it two bedrooms. The second bedroom might not be very big, but you could get in somebody to rent with you if you're prepared to open up your house to somebody you might not know or you might have, I don't know, a cousin or somebody else, a family member, that basically is in your position. Buy it together as best you can. I'm never a supporter of trying to share real estate in both names and things, because difficult things can come up. You've got to have legal agreements and everything. Some person in future might want to sell before you do. All those things.
Phillip J. Anderson: Nevertheless, see if you can come up with some way of being able to afford more than might be routinely obvious. And you just sort of got to go from there. So it's a very difficult thing, not saying it's easy, but, you know, as one very famous Australian Prime Minister put it once, he said life wasn't meant to be easy. So, you know, good things come to those that work harder than everybody else. I think you've just got to be a bit, you've got to not work harder, but work smarter and just be a little bit inventive.
Seth Williams: I remember the first time I ever heard about this concept of the 18-year cycle. I think it was from some Harvard Business Review article I read years ago. But I remember being just kind of fascinated by it. And one of the things it was talking about in that article, maybe you talk about it in your book as well, is this idea of developers. Like, they basically kind of need to be aware of this cycle and have the foresight. Like if they're about to buy up a huge plot of land and build a subdivision over the next three years, or if somebody's going to build a skyscraper that's going to take two or three years to complete, you know, basically don't do it if it's right at the beginning of the crash. Like, understand when the cycle is going to hit. Is that accurate?
Seth Williams: Like, if there's a developer out there listening to this right now, given where we're at at the peak of land prices, should they be just holding off, or like waiting a couple of years and just hoarding cash until it crashes and then do it? Or what is the right way to treat this situation, given where we're at, where we haven't hit the fallout yet, but like it's probably around the corner.
Phillip J. Anderson: You have to know your own business. You have to know your lending capability. You have to know your bank. I've always thought myself that developing land, I think, is one of the most important functions in the economy. And I think that they should be better looked after than developers are, mostly. We're not talking about speculators here that just want to flip a house here and there. We're talking about genuine people like, you know, the listed Toll Brothers and D.R. Horton, you know, the genuine and even some of the smaller ones that aren't listed. They do a very important service in society providing people housing and it's not always easy to get right. You have to do a deal-by-deal basis and have a look at your balance sheets and things. What I would add to that scenario is that if you had a deal coming up and you had to bet the house on it, let's say it looked really good, right?
Phillip J. Anderson: But then you thought, oh, this is a sure winner, blah, blah, blah, everything else happens. If you had to bet your house on it and you had to borrow absolutely everything you've got and you had no reserves in place, then history suggests that it's probably not the right time to do that. But if you have a solid balance sheet, and let's face it, you have a very good history of business, and you can summarize the deal, and you don't need to be fully in debt to do it but you do have to borrow a little bit of money, then you've got to assess where interest rates are going. And they're probably going up from here. So you might think about locking in a rate for three years and approaching the business that way, and say, okay, what's my worst case scenario? What would happen if prices dropped 10% next year? Could I still manage? Could I still do the deal?
Phillip J. Anderson: And so if everything else like that stacks up, then I think you're obligated to do the deal because that's what business is all about, doing the deals and making them and putting a bit of risk on the line and so on and so forth. But now is not the time to be going full on, 100% of the business in debt and not having any recourse. That's what I would add there.
Seth Williams: What about lenders? Like if there's somebody listening to this, maybe they're a private lender on land deals or maybe just a bank, a banker, a loan officer is listening to this. Should they be kind of making similarly conservative decisions on the deals that they lend money on?
Phillip J. Anderson: Lenders, Seth, lenders will never change. Banks, same. They're very happy to give you an umbrella when it's sunny outside. I can't see that ever changing, cycle to cycle. And I read a, there was a great comment. I think it was last month, might even be my, one of the, one of the biggest banks, Goldman Sachs or others. They said, whilst the market's in tune and playing the music, we have to dance. That just sums up the banking industry to me. You got to lend when everybody wants it. And it will come to a cumulative point that it is what it is. So again, if you're trying to assess deals at the moment, you don't want to know in 2028 when you really do need some money. History would suggest that that's the time when banks are not going to be able to lend. Got to plan for all that.
Seth Williams: Now, if I'm planning to buy a property and hold the thing for 20 plus years, does it even matter where we are in the cycle? Because I'm going to own it through that entire cycle?
Phillip J. Anderson: Yeah, just, just if it's your own house, you've got to live somewhere and you need security of tenure. You need a reliable place and you want to feel safe. Get in. You've got to be in the market. As you probably, I'm sure as most developers and people would know it, your perspective changes, your perspective in life changes a little, sometimes a lot once you become a homeowner. It's different to renting. And I'd encourage, I'd encourage that perceptional change to anybody that wants to get in and own their own home. I think it's a positive thing to do. Just do the best you can on it, yeah.
Seth Williams: Do you think the federal government knows and understands when economic recessions are around the corner, or are they just kind of oblivious?
Phillip J. Anderson: That could be a leading question.
Seth Williams: That's kind of the idea. Tell me what you really think.
Phillip J. Anderson: Maybe yes or no. There are some, I think generally, I can't talk about the U.S. so much, born and raised in Australia, but I do find generally... And this is on both sides of the aisle, the majority of people that go into the Senate and go into the Congress, they do have a genuine desire to do something for the country. And I think that's nowhere more true than the United States. The people who go in there generally have a great desire to improve the country. Now, I know some of them probably get a bit corrupted once they get in. It's probably not an easy place to be. But generally, they also want to try and understand the system and provide the best benefit that they can for their voters. So some of them, I think, do have a genuine understanding of basic economics and they sort of feel the cycles.
Phillip J. Anderson: But I don't think they're in a position to do anything because there are often more immediate pressing issues for most voters, like, for example, affordability, right? So the concepts that come up are not likely to be put forward by politicians very much. Also, the whole concept of genuine economics has been completely lost now. So they don't understand economics in the term of the three factors of production, land, labor and capital. And so you end up with politics, certainly since the First World War, where you have a left and a right. The electorate turns right some years, they find it doesn't work. They then turn left, they find that doesn't work. And they're left with the whole misunderstanding, right? Now, there was, I think, again, name escapes me, but I think there was a genuine Republican in Alaska in 1974 that thought a bit outside the box.
Phillip J. Anderson: And when Alaska as a state discovered oil, and you'll be able to Google this, it's on Wikipedia, that Republican fellow said, I think we should do something better with this oil than just spend all the money all at once. And so he required all the oil revenues to go into a sovereign wealth fund, which Alaska has. And so Alaska pays its citizens, every citizen, everybody born in Alaska will get $1,500 U.S. every single year on the 1st of January from oil rents. Now, that's a smart politician. He's not left, he's not right. He simply says, perhaps we should use our resources better. There was a government in Norway in the 1970s and 1980s that effectively did the same when they found oil. They decided that they should put oil rents, the proceeds, into a sovereign wealth fund, which is now called the Norwegian Sovereign Wealth Fund.
Phillip J. Anderson: The Norwegian, that fund now owns, on average, two and a half percent of every single listed stock in the world. It is that wealthy. And so I think there was a guy, again, name escapes me, Andrew Yang, somebody, who stood for America. He stood as, offered himself to be president, and his concept, which he took to the American people, was a citizen's dividend along the lines of what was happening in Alaska. Well, I think he got 2% of the vote. You know, it wasn't huge. So I don't think any change is likely to come from the political establishment. So we are more than likely to get more of the same. That's not to call them particularly dumb or whatever else. I might say as well, you now do have a president who's done some good things and I think some bad things, but along the way he's shaken things up, which I thought politics needed a shaking up.
Phillip J. Anderson: But he has a history of having been bankrupt in 1991, bankrupt again in 2008, right at the bottom of two real estate cycles, and I don't think he learned anything. And here we are now, he's in charge of the United States government and he's spending money as if it isn't his, and it isn't his, taking the country deeper into debt in what I think is precisely the wrong time to be doing that. So to me, that's politics for you. Now, I don't know, Trump might be right. He's attempting to grow the country, making it easier to invest. He's allowing AI some free rein to get the developments. He has to do some things with all the metals and various things like that, which he's trying to do. China's now providing a lot of competition. It may work, but I think history is not on his side. So it would pay your viewers and listeners, it would pay them to understand the cycle at this point.
Phillip J. Anderson: It's big debt we're talking about here with the United States government.
Seth Williams: I was watching one of your videos this morning. You were talking about how Trump was suggesting that Bitcoin could be a reserve currency. And then you said, and you know how that ends. I actually don't know how that ends. How would that end if that became a reserve currency?
Phillip J. Anderson: Well, you see, again, this gets back to politics, but the American federal government has, and, the world really has an historical anomaly whereby at the Bretton Woods Agreement, 1944, it was decided to make the U.S. dollar the reserve currency. John Maynard Keynes at the time said this was probably a mistake. He said that the reserve currency probably should have been 40% U.S. dollars, 30, 40% gold, a bit of silver and something else, commodities and other things to make it more stable. So now we have a political situation where the American government with its outstanding debts would go bankrupt if it had to pay for its own things without printing U.S. dollars. And so the whole U.S. thing now is built on trying to have U.S. dollars traded. So Bitcoin is a part of that.
Phillip J. Anderson: So you set up Bitcoin reserves and you set up stable coins and various things whereby the backing of that is to the U.S. dollar. That may work. So that's where Bitcoin comes in. But me personally, what you usually find, what history usually tells you is that when we get a land-price-led recession where banks get into trouble, and people who didn't have trouble before, they start getting into trouble. Usually they start to get themselves out of trouble. You can't sell the land at that particular point because the price is declining so much. So they have to start to sell what is easily sellable, Bitcoin, gold, silver, those sorts of things. So I don't think it's the answer for that reason, but time will tell.
Seth Williams: In that same video, you said we now have 25 to 30 months to prepare ourselves and do the opposite of what everyone else is doing. So what is everyone else doing? And what does the opposite look like?
Phillip J. Anderson: Well, I said that about two years ago.
Seth Williams: Important point.
Phillip J. Anderson: Yeah. The majority of people are now, you can see that the CAPEX on the AI buildup, the AI buildout, they're borrowing as if there's no tomorrow. History says that always comes to an end. And this is where I have found over the years that I hesitate to introduce a new concept, but there's a fantastic American trader a long time ago called W.D. Gann, G-A-N-N, and that guy, Gann, he died in 1955, I think it was, 56. He had what he called a decade cycle chart, which was just basically, overlaying all the years, years one to zero of the stock market, how that stock market shape looked. And as far back as you go, years ended in one have always been a recession. And so I just think that, you know, history will tell you again. And so years ended in five have been really big bull markets.
Phillip J. Anderson: Years ended in six have been, the stock market, the American stock market almost always has finished higher than it started. Years ended in seven, we start to get troubles. October. October in years ended in seven usually brings a stock market crash of some sort, and then we start getting troubles. And we're exactly on course to do that again, amazingly, really. And so during that time, years ended five, six and seven, everybody goes into debt. And I just think it's time to do the opposite of what everybody's doing. And now, to do the opposite, we're just building up a bit of cash. Doesn't mean avoid debt. It just, just don't be silly about it. That's all.
Seth Williams: Yeah, sure. Well, as we wrap this up, one final question. So if this is the wrong time to be piling on debt, walk me through what the right time actually looks like. Like, when does it make sense to bet the house and go all out? Like, what would have to be true? That kind of thing.
Phillip J. Anderson: When you can't get credit, 2011 was hard. It was very hard. I was buying in London then. My business partner at the time worked for a branch of an Australian bank. I mean, she was in a bank, right? And we still couldn't get a loan. And I found out pretty quick, as everybody else finds out. Eventually you run out of cash. You just can't keep, unless you're the government, you can't keep printing cash, which is why you seek credit and loans. So your best time to go all in is when there's just no credit available.
Seth Williams: And that must be why you're trying to get you and your son in a place where banks love you, right? Because you probably see what's coming. It's like you want to be ready for that, so you can go all out when the time serves you best, right?
Phillip J. Anderson: Well, especially him, because he's only 23 at the moment. So he's got, you know, he'll have two, maybe three cycles in front of him. So he gets to see all that, right? I've seen, this is my third, this will be my third. So I hope I'll see a fourth, maybe with longevity, inventions, maybe more, but who knows.
Seth Williams: Yeah. Awesome. Well, Phillip, it's been a fascinating conversation. Thanks so much for taking the time to talk to me and the REtipster audience. If people want to find out more about you or subscribe or do anything in your world, where should they go? What should they do?
Phillip J. Anderson: Yeah, the Property Share Market Economics website and sign up for the weekly blog. It's free. It's not going to cost you anything. And you can determine from there what you want to do.
Seth Williams: Sure. And I will include links to all that stuff in the show notes. Again, retipster.com forward slash 289. Phillip, again, great to talk to you. Thanks for being here. All the listeners out there, we will talk to you next time.
Phillip J. Anderson: You're welcome. It was great.
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