Will the rise of AI affect the property market?

Posted by Gavin Chau

11:27 am—I worked late last night at the office to prepare the State of Play 2025. This happens every year; it must be my ADD tendencies. The research team always has a busy start to the year with presentations and reports. It’s difficult because, at the same time, the inshore black marlin, big kings, and mahi turn up in Sydney on that first push of current from the north. The jewfish also push down to the lower reaches of the bays and harbour.

As the summer progresses, the number of fish increases, and the size drops – I don’t generally fish as much then, but I hope to get my six-year-old son onto a kingfish. It’s interesting that many children’s earliest memory is a holiday or family outing when they’re five or six years old. I guess these things must imprint onto our brains somehow – the same way massive turning points in the economy imprint into our adult brains via our pockets.

2025 will be a great year for asset prices; the global economy has turned pessimistic, and global central banks have cut rates 153 times – the most since the pandemic in 2020 (162 cuts). The central banks are rushing to repair the damage they’ve done with high rates over the last few years. Australia is still bucking the trend. It’s been four years since we’ve seen a cut, but the RBA can’t fight the tide forever. This can only mean one thing for asset prices… number go up.

It’s always useful to take the time to zoom out and see the bigger picture when it comes to investing. It’s just hard to do when you’re bogged down with daily life.

The liquidity cycle has clearly turned the corner and moved into an upswing that should peak in 2026/27. When we move from quantitative tightening (QT) to quantitative easing (QE), asset prices are dragged up everywhere, including Australian property prices. This also aligns very precisely with my property cycle model, which has played out almost perfectly since the 1960s. As always, it’s good to see confluence between several different types of analysis, and the average of two forecasts tends to halve the error rate. When both forecasts converge on the same result, that’s even better.

This year also feels like the acceleration of a turning point for human progress. We’ve entered the fourth industrial revolution.

Let’s quickly recap the previous industrial revolutions.

First Industrial Revolution: In 1765, the invention of the coal-powered steam engine and the improvement of metal forging processes reduced human and animal labour and moved agrarian economies into production-based industrial economies. It also allowed the mass movement of people from one area to another, opening up new cities further from food sources.

Second Industrial Revolution: In 1870, the harnessing of electricity and the invention of the electric motor lengthened the working day, and the creation of the energy grid allowed mass production and cheaper goods.

Third Industrial Revolution: In 1969, the birth of electronics and computers greatly accelerated and democratized the ability to solve complex problems. It was also the birth of nuclear power.

Fourth Industrial Revolution: In 2010, the fusion of the digital and biological worlds and the creation of AI occurred. As Elon Musk said, ‘We’re already cyborgs.’ The widespread use of smartphones gives us nearly the entirety of human knowledge at our fingertips, and we can already connect with humans anywhere on the planet. It’s just that the interface is slow.

The acceleration in the pace of AI is the other part.

The IQ of AI has roughly been doubling every year. In 2005, grandmasters could still beat AI in chess. By 2006, humans had never beaten AI again. Ultimately, we will create something that will likely be a million times smarter than we are, which will have profound implications for the jobs our children will have in the future. Maybe knowledge-based jobs will greatly decline besides those directly involved in creating AI and robotics. The only jobs that can’t be replaced are those where you need a human to do the work, such as in a trade. If jobs are displaced, then wealth gets concentrated into the hands that own the AI, and unless there’s a way to redistribute the wealth, maybe we enter an Elysium-type world with elites living in a pristine world and the rest living in squalor.

The optimist in me thinks that this won’t play out, as every other industrial revolution has increased human prosperity. By any conceivable metric, today’s common man lives a better life than a medieval king, with air conditioning, electric lights, cars and airplanes for travel, vastly better healthcare, refrigeration, and better food.

I don’t know how this all plays out for the property market, but the concept of land being a store of wealth probably existed before modern humans emerged 200,000-odd years ago. If I were to place a bet, we would still need somewhere to live in the future, and the scarcest and most valuable locations would remain in the most demand.

Posted by Gavin Chau, on 14th Jan 2025