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📈 38% of young home buyers have family help | Thought Starters

A collection of our favourite articles from the past week

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Why Norway — the poster child for electric cars — is having second thoughts

When we think forward-thinking nations, we often think of the Scandinavian countries. So if asked where electric vehicles were being adopted most quickly, most people would answer Denmark, Norway or Sweden. And you wouldn’t be wrong. Norway has been a leader in electric vehicle adoption. 87% of new cars sold in Norway are fully electric, compared to 13% in the European Union and 7% in the United States. However, the story isn’t that straightforward. This article from Vox explains why Norway is starting to have second thoughts about electric vehicles.

The Norwegian government found that it’s heavy subsidies for EVs was having the desired effect - Norwegians were substituting internal-combustion engines for electric vehicles - but it was also having an unanticipated effect - Norwegians were also substituting public transport and bicycles for electric vehicles. Overall car use was rising and this was affecting other Norwegian government transport priorities. Namely, untethering themselves from the car, encouraging residents to cycle or take public transport and freeing urban spaces from traffic congestion. As a result, Noway’s government has started to pull back on some of its EV subsidies.

The 2010’s were a boon for the electric vehicle industry in Norway, especially as the company enjoys plenty of emissions-free, cheap hydropower. But the success of their pro-EV policies have ultimately shown the need for a more complete transport policy. As the rest of the world plays catch up to the Scandinavian countries in EV adoption, it is worth paying attention to how they are changing their own policies.

"Nepo-homebuyers": 38% of young buyers use family money for down payments

A report from Redfin found that 38% of recent homebuyers under the age of 30 received family money in order to afford their downpayment. This data is out of America, but the numbers are similar in Australia. A recent Australian study put the number around 40% of 25-to-34 year old homebuyers, while a second suggested it could be as high as 60%.

These are just the latest data points that show how stretched housing affordability is. A separate study from Bankrate found that nearly three-quarters of aspiring homebuyers report that affordability is the number one obstacle to owning a house. (Although the more you think about that study, the more you wonder what the largest obstacle for the remaining quarter of respondents is). 

The unaffordability of housing is fast becoming a structural problem in the economy. As more and more first homebuyers require family help, the gap between those whose families can help and those whose families cannot will only widen. 

And the pressure doesn’t appear to be easing any time soon. Rising rents is one of the reasons inflation remains stubbornly high and pushing more people to try and buy. High levels of overseas migration is further pushing up demand, while builder bankruptcies and tradie availability have supply struggling to keep up. And even 13 interest rate rises in 18 months haven’t stopped house prices returning close to all time highs. In the meantime, a generation of Australians are feeling priced out of the housing market.

No wonder more and more young people are needing to turn to their families for help. 

Aswath Damodaran: The Dean of Valuation

Ashwath Damodaran, the professor of finance at NYU Stern Business School, is one of the world’s most well-known financial minds. Damodaran has a particular focus on valuing companies, so much so that he has been dubbed “The Dean of Valuation”. This article looks at Damodaran’s life but also some of his key methods for valuing stocks. 

One interesting distinction Damodaran makes is between true valuation and ‘pricing exercises’. A lot of investors will value a company by looking at market multiple - for example price-to-earnings ratio or price-to-book. Some investors will take it a step further and compare a company’s multiples to a group of similar companies. Damodaran does not believe looking at these market multiples can be said to be truly valuing a company. Instead he thinks it is just a pricing exercise.

Valuation is calculating fair value based on the information about the company - i.e. its cash flows today and into the future. When investors determine the value of a company by comparing it to its peers, there is an assumption that the market is rationally pricing the other companies - which is often not the case. Moreover, when you’re looking at a great company that you might want to invest in, you may often struggle to find a true like-for-like comparison.

For investors that want to invest in individual companies, valuation is the name of the game. Finding great companies is the exciting part of the process. Correctly determining the price to buy them at is where the money is made. Ashwath Damodaran is one of the best people to learn from if you’re looking to build that skill. 

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The people who ruined the internet

Soon, he said, Google results would be even worse, dominated entirely by AI-generated crap designed to please the algorithms, produced and published at volumes far beyond anything humans could create, far beyond anything we’d ever seen before.

Our central takeaway from this article was simple: if you think Google Search results have deteriorated, strap in, because they’re about to get a lot worse. 

This article takes us to a digital marketing convention in Florida, where experts in the dark art of Search Engine Optimisation (SEO) gathered to drink and discuss the future of the industry. These are the experts on backlinks, keywords and meta descriptions that help webpages rank higher in Google searches and get more clicks (and ultimately more ad dollars). 

Digital marketers are going through a moment of crisis with the onset of artificial intelligence. Their efforts are being rendered more and more ineffective when compared to AI’s output. What this may lead to, as AI continues to get more efficient, is poorer quality, AI-generated content outranking higher quality, trustworthy pages at the top of our search results. 

But we shouldn’t despair for our ability to find information. Google has faced these moments before. The article discusses 2003 and 2011, two previous instances where digital marketers had overrun Google’s search results with low quality pages and Google was forced to react, change their algorithms and ultimately restore Google’s basic value proposition: delivering the highest quality information as the highest search result.