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I am curious about the downstream effects of house prices becoming increasing multiples of income in so many western countries. E.g. I suspect it will hit entre

I am curious about the downstream effects of house prices becoming increasing multiples of income in so many western countries. E.g. I suspect it will hit entrepreneurship. Younger generations are buying houses later and taking out massive loans when they do. For the boomers you'd often hear how they bought a house soon after college and paid it off by their early thirties. This would put people in a good place to leave their work for a couple of years to start a business. Now people have these huge mortgages where your ability to start a business is hampered by your ability to get a financial buffer to take a year or 2 off. And lets not forget most businesses are created form people mid-career, not the TV typical university dropout. And small community business, how will they exist in the future. If someone wants to set up a local 'physical presence' vet/daycare type business that are typically mixed into residential areas the threshold is now so high ot exist and especially set up a new business. How can a daycare buy a million+ dollar house and expect to make money paying that back on having 30 local kids being looked after. Also what is going to happen with retirement and periods of unemployment. I suspect society will be less stable as either the government has to foot high rent costs (unlikely) or we will see increased population movements during retirement, and now the government has to look after older people that before a family who lived nearby could help out with. And during low employment cycles society can absorb this downturn if people dont have large loans. Historically people cant 'tighten belts' for a year while things improve, harder when your neck deep in debt. So we will again see more movement of people, debt default etc. It will serve to exacerbate recessions etc. Also these higher prices skew the economy. When people are tied up in these ever increasing loan/income ratios there will be less spending on dining, holidays, hobbies etc. It will weaken the economy by concentrating the spend in limited areas. I believe we should look to ensure affordable housing for owner occupiers. Residential investment need to be discouraged (note I'm not saying stopped) as a speculative asset class. I've seen a few suggested methods to achieve this but I feel the simplest is to place a yearly 'asset tax' on non-owner occupied residential property (I would also include farms). Having a % tax would make it easy to adjust to find the right balance given economic cycles change. Also this would encourage property hoarders not in heavy debt to sell for lower taxed asset classes. This I feel is important as most solutions focus on controlling the investment lending side which is limiting in reach.

markdown 11y ago
> I suspect it will hit entrepreneurship. I agree. Entrepreneurship will increasingly become the domain of the rich (or rather, the children of the rich).
- rconti 11y ago
  It typically has been. You haven't always been able to build an app in a day or spin up a few AWS instances to handle increased load on your webapp. This is a relatively new thing.
diskcat 11y ago
There aren't any small businesses anymore and for good reasons. The mom and pop shops are inefficient. They do not employ the highly efficient operational system that big businesses can employ so all your coffee shops are now starbucks or some other franchises. >Also these higher prices skew the economy. Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended. >When people are tied up in these ever increasing loan/income ratios There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else. >I believe we should look to ensure affordable housing for owner occupiers. the solution to this is georgian land value tax. There is no reason otherwise to ensure 'afforable housing for owner occupiers' except your personal belief that society should subsidise a particular class of property ownership whereby the owners use the property directly. What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
- Gustomaximus 11y ago
  > Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended. Price is one tool. Government skew pricing via subsidies and other to business all the time. Imagine primary schools in a pure capitalist system. It would be a mess. There is loads of intervention all through the economy that overrides pure pricing so I dont buy into this view. > There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else. Land supply is fixed. But demand is variable. If you reduce investment incentive for this limited land pool, prices should reduce via less competition freeing personal capital for other spending. > What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting. Maybe... 1) there were studies in Australia when the gov removed tax breaks on investment property. Some people made a claim similar to you this cost would be passed on. Empirical results were the majority of regions (some exceptions of course) found little to no impact on rental price and this cost was absorbed into investment returns. And 2) Don't forget this action will reduce house prices, so those that do buy residential property for investment will require lower rental return as the initial house price is lower.

markdown 11y ago

> I suspect it will hit entrepreneurship. I agree. Entrepreneurship will increasingly become the domain of the rich (or rather, the children of the rich).

rconti 11y ago
It typically has been. You haven't always been able to build an app in a day or spin up a few AWS instances to handle increased load on your webapp. This is a relatively new thing.

diskcat 11y ago

There aren't any small businesses anymore and for good reasons. The mom and pop shops are inefficient. They do not employ the highly efficient operational system that big businesses can employ so all your coffee shops are now starbucks or some other franchises. >Also these higher prices skew the economy. Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended. >When people are tied up in these ever increasing loan/income ratios There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else. >I believe we should look to ensure affordable housing for owner occupiers. the solution to this is georgian land value tax. There is no reason otherwise to ensure 'afforable housing for owner occupiers' except your personal belief that society should subsidise a particular class of property ownership whereby the owners use the property directly. What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.

Gustomaximus 11y ago
> Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended. Price is one tool. Government skew pricing via subsidies and other to business all the time. Imagine primary schools in a pure capitalist system. It would be a mess. There is loads of intervention all through the economy that overrides pure pricing so I dont buy into this view. > There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else. Land supply is fixed. But demand is variable. If you reduce investment incentive for this limited land pool, prices should reduce via less competition freeing personal capital for other spending. > What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting. Maybe... 1) there were studies in Australia when the gov removed tax breaks on investment property. Some people made a claim similar to you this cost would be passed on. Empirical results were the majority of regions (some exceptions of course) found little to no impact on rental price and this cost was absorbed into investment returns. And 2) Don't forget this action will reduce house prices, so those that do buy residential property for investment will require lower rental return as the initial house price is lower.