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Nobody complains about speculators on the way down. Speculators do add value by making the market more efficient. For example, if there is going to be a house
by witty_username 10y ago
Nobody complains about speculators on the way down.
Speculators do add value by making the market more efficient.
For example, if there is going to be a house shortage then speculators will buy it early thus rewarding people for developing houses earlier.
Or, if there are too many houses, speculators can short it and bring prices down and so make housing more affordable earlier.
- bendmorris 10y agoIs the amount of value speculators capture proportional to the efficiency gains? If there were less or no speculation, what would be the net result?
- witty_username 10y ago> Is the amount of value speculators capture proportional to the efficiency gains? Yes. > If there were less or no speculation, what would be the net result? You would have more housing shortages and more excess housing.
- bendmorris 10y ago>Yes. I'm pretty skeptical, do you have any supporting evidence?
- witty_username 10y agoThere might be evidence, but I could not find it in a cursory search. Let us assume constant demand for houses. Suppose a housing shortage is going to happen in 1 year. Speculators will buy houses thus incentivizing construction and lowering prices in the future. The more adverse the shortage (consider supply and demand) the greater the difference in prices between now and 1 year from now and thus the greater the gains of the speculators. Speculators are essentially arbitraging over time. If the speculators incorrectly buy houses when there is excess housing, they will lose money proportional to their mistake.