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Housing prices are artificially high because of debt and finance. If loans/debt/financing/mortgages were made illegal, then these artificial high housing price

Housing prices are artificially high because of debt and finance. If loans/debt/financing/mortgages were made illegal, then these artificial high housing prices based on the credit line one can obtain rather than what one can actually afford, prices would come down to fair market value. I know people will claim credit is based on what one can afford but that is mental gymnastics (foreclosures, student loan defaults, car repos, and credit card defaults could all suggest otherwise)and wouldn’t matter if credit were made illegal. The same is true of student loans. Tuition costs couldn’t continue to exponentially (artificially) increase based on the guarantee of government loans to students to cover these costs, take away a the loans and the prices will meet the new demand.

ineedasername 8y ago
Eh, the full picture is more complicated for college tuition prices. While loan availability may drive up tuition somewhat, there has been a drastic decrease in state funding to higher education over the last few decades. In New Jersey, one of the worst offenders, the state funds less per student than 20 years ago, and that is before inflation. This has driven an increase in bonds used to support things like capital expenses and even basic infrastructure maintenance, and the interest on those bonds has driven up operating expenses. Another factor is a sort of raise to the bottom arms race among colleges to attract students with shiny new facilities, causing even more debt.
ip26 8y ago
Hmm, forgetting land entirely, actual replacement cost is a lot higher than most people can afford directly (literally, the cost of materials and labor, a very competitive market) so I think instead of arriving at the true price of the house the market would instead be dominated by those who hold capital (as with industry), and we'd basically all be renters.
- will_brown 8y ago
  The credit based system is already dominated by people with capital. And I admit that same general bias would likely appear in homeownership statistics in a non credit based system. But the systemic problems of indebtedness and lack of access to credit (either bad credit or no credit) would disappear. Your greater point may be right, that leveling of the playing field will be all for not because the still existing wealth divide. To your point to the costs. I think the home costs are already generally the cheaper part in most real estate purchases (ie the land is worth more than the home). And those costs (like everything in society) are artificially inflated because the pricing is set in a credit based system where price is based on future ability to pay/not what one can pay out of pocket today.
  - ip26 8y ago
    To your last point, it all depends on the location. Somewhere in Ohio, you might have $100k or $200k of house on $10k of land. Where I live, I'm at about 50/50, if insurance's adjudication of replacement cost is accurate.
johnpmayer 8y ago
Credit allows people to purchase things beyond their current wealth but rather within their future means to pay (their future productivity and trustworthiness). This is particularly useful for those who aren't born into wealth: Credit is practically the only way for normal folks to access productive capital, such as a home that allows you to avoid paying rent, or an education that in theory makes you more productive in the future. You are correct to point out that the prediction of one's future ability to pay (their future productivity and trustworthiness) is difficult. But I think eliminating credit (at least when used to purchase productive capital) is throwing the baby out with the bath water.
- __blockcipher__ 8y ago
  IMO homes should not be considered productivr capital. Farms are, as one example. A home sits there and looks pretty (maybe), slowly losing real value. Of course, w/ an increasing population amd limited supply it accrues nominal value (and “real” value in the investment sense). Yet compared to owning shares in an actual productive company, it’s a very poor value proposition.
  - johnpmayer 8y ago
    A home produces rents. If you live in the home that you own, you can think of it equivalently as a productive asset that provides you one unit of free rent (modulo some quality of life factor based on how nice the property is to live in) every month.
    - tonyedgecombe 8y ago
      If that was all it was it would be fine. The trouble is, at least in the UK, property has been an appreciating asset. People have been using it as a source of current or future income rather than just a home.
    - boombust 8y ago
      If you look at it through the lens of opportunity cost, sure. But homes don't actually yield anything, they are not productive in that sense. So from the economy's standpoint, there seems little reason to classify it as such along with financial assets that produce yields.
conanbatt 8y ago
Your analysis misses out on the most important part: volume. Mortgages increase prices but also sales. IF you eliminated mortgages, you would have less home-owners.

ineedasername 8y ago

Eh, the full picture is more complicated for college tuition prices. While loan availability may drive up tuition somewhat, there has been a drastic decrease in state funding to higher education over the last few decades. In New Jersey, one of the worst offenders, the state funds less per student than 20 years ago, and that is before inflation. This has driven an increase in bonds used to support things like capital expenses and even basic infrastructure maintenance, and the interest on those bonds has driven up operating expenses. Another factor is a sort of raise to the bottom arms race among colleges to attract students with shiny new facilities, causing even more debt.

ip26 8y ago

Hmm, forgetting land entirely, actual replacement cost is a lot higher than most people can afford directly (literally, the cost of materials and labor, a very competitive market) so I think instead of arriving at the true price of the house the market would instead be dominated by those who hold capital (as with industry), and we'd basically all be renters.

will_brown 8y ago
The credit based system is already dominated by people with capital. And I admit that same general bias would likely appear in homeownership statistics in a non credit based system. But the systemic problems of indebtedness and lack of access to credit (either bad credit or no credit) would disappear. Your greater point may be right, that leveling of the playing field will be all for not because the still existing wealth divide. To your point to the costs. I think the home costs are already generally the cheaper part in most real estate purchases (ie the land is worth more than the home). And those costs (like everything in society) are artificially inflated because the pricing is set in a credit based system where price is based on future ability to pay/not what one can pay out of pocket today.
- ip26 8y ago
  To your last point, it all depends on the location. Somewhere in Ohio, you might have $100k or $200k of house on $10k of land. Where I live, I'm at about 50/50, if insurance's adjudication of replacement cost is accurate.

johnpmayer 8y ago

Credit allows people to purchase things beyond their current wealth but rather within their future means to pay (their future productivity and trustworthiness). This is particularly useful for those who aren't born into wealth: Credit is practically the only way for normal folks to access productive capital, such as a home that allows you to avoid paying rent, or an education that in theory makes you more productive in the future. You are correct to point out that the prediction of one's future ability to pay (their future productivity and trustworthiness) is difficult. But I think eliminating credit (at least when used to purchase productive capital) is throwing the baby out with the bath water.

__blockcipher__ 8y ago
IMO homes should not be considered productivr capital. Farms are, as one example. A home sits there and looks pretty (maybe), slowly losing real value. Of course, w/ an increasing population amd limited supply it accrues nominal value (and “real” value in the investment sense). Yet compared to owning shares in an actual productive company, it’s a very poor value proposition.
- johnpmayer 8y ago
  A home produces rents. If you live in the home that you own, you can think of it equivalently as a productive asset that provides you one unit of free rent (modulo some quality of life factor based on how nice the property is to live in) every month.
  - tonyedgecombe 8y ago
    If that was all it was it would be fine. The trouble is, at least in the UK, property has been an appreciating asset. People have been using it as a source of current or future income rather than just a home.
  - boombust 8y ago
    If you look at it through the lens of opportunity cost, sure. But homes don't actually yield anything, they are not productive in that sense. So from the economy's standpoint, there seems little reason to classify it as such along with financial assets that produce yields.

conanbatt 8y ago

Your analysis misses out on the most important part: volume. Mortgages increase prices but also sales. IF you eliminated mortgages, you would have less home-owners.