"I hate to say it”: 30-year property veteran warns only a recession or higher rents will fix housing supply

Last time Andrew Parsons joined The Rules of Investing, he warned that Australia had its head in the sand on the prickly issue of housing. Fast forward two years, and affordability and the supply of new housing remain unresolved.

Parsons is the Chief Investment Officer of Resolution Capital and a 30-year real estate investing veteran who has successfully navigated multiple market cycles. And while his expertise is in global listed real estate investment trusts (REITs), he says that experience positions him well to comment on the acute challenges facing broader residential property.

Inflated land values, high labour and materials costs, and higher hurdle rates have all but crushed the economics for delivering new housing supply, and there's no easy solution.

"One of two things has to happen. Either rents have to go up materially, or we have to see an economic recession. I hate to say it. They're the two options. There's no silver bullet," he says.

It’s a confronting scenario, and neither option sounds particularly appealing. If you are looking for a property, you face higher rents or the broader fallout of an economic downturn.

Yet step outside domestic residential, and Parsons argues the commercial real estate cycle is in surprisingly robust shape. Across global listed property, spanning everything from prime offices and regional shopping malls to seniors housing and select data centres, the fundamentals are compelling.

A major reason is capital starvation. Massive government deficits, combined with trillions of dollars funnelled into artificial intelligence and mega-infrastructure projects, are sucking capital away from commercial real estate developers. In commercial property, that lack of capital is a blessing: it prevents developers from overbuilding, leaving supply severely constrained while tenant occupancy remains elevated.

“The two things that get real estate into the most trouble are too much supply and too much debt. We're facing neither prospect at the moment. So that tells us that the real estate sector and listed real estate sector are in a very good position to provide attractive, competitive returns."

Crucially, Parsons stresses that capitalising on this backdrop requires understanding two structural realities: liquidity and time horizon.

While private credit and unlisted property vehicles have lured billions with promises of steady paper valuations, many have gated redemptions when liquidity dried up. In contrast, listed REITs offer transparent, daily pricing.

"People are fooled into believing you don't need liquidity... They're now learning the lessons of the importance of liquidity and transparency," Parsons notes.

"Now, being listed does mean the perception of volatility, but that volatility is liquidity, and that liquidity has value that people don't properly assess."

With listed REIT balance sheets carrying average gearing below 30% and borrowing at investment-grade spreads, Parsons argues that listed markets have consistently proven resilient across cycles. If investors look past short-term mark-to-market noise and commit to a five-year horizon, property return outcomes become far more predictable - historically delivering around 8% to 9% per annum.

In the interview below, Parsons breaks down the state of the property cycle and where Resolution Capital is identifying the strongest structural demand. He also shares a candid view on the challenge of affordable housing, which he says isn't unique to Australia.

Time codes

• 0:00 - Introduction
• 5:00 - Where are we in the property market cycle?
• 9:16 - Office property markets are hot
• 11:40 - Healthcare, data-centres and retail
• 18:40 - How long can property markets remain undersupplied?
• 20:40 - A tough outlook for residential property in Australia
• 28:19 - Where does listed real estate fit in a portfolio?
• 33:40 - Volatility and liquidity in listed property markets
• 35:28 - What are investors getting wrong about markets

ETF

Resolution Capital Global Property Securities Fund – Active ETF (RCAP)

Global Property

View