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Why is this a problem? Some very rich people become a little bit less rich. None of them seem to be in danger of falling into penury over only getting $1M for t

by imgabe 7y ago

Why is this a problem? Some very rich people become a little bit less rich. None of them seem to be in danger of falling into penury over only getting $1M for their house instead of $2M. Sounds like the supply and demand working the way they're supposed to.

tomatocracy 7y ago
At a macro level and over the long term, even if prices fall and this means that slightly less rich people can buy them instead, big houses are more expensive and more work to look after and maintain and there is a limit to the number of people willing and able to do that. The ultimate end result could be that some of these houses become derelict, which isn’t really good for anyone. This is what happened to a good number of the large country houses in England after food prices fell in the late 19th and early 20th century.
- 0xDEFC0DE 7y ago
  Knock $10-20k off the price and put that towards hiring people to clean it. Bundle the house sale with cleaning services for a few years or something. The amount of people willing to deal with it will grow as the price falls, but that's not newsworthy. That's the uncomfortable truth for people wanting to sell.
  - kevin_thibedeau 7y ago
    There's still energy costs wasted on heating and cooling 4x more space than you need.
    - tomatocracy 7y ago
      Not just energy costs - replacements for kitchen/bathroom fittings as they fail, painting/decorating, cleaning, basic maintenance to ensure the place doesn’t fall down, keeping gardens from becoming overgrown, the list goes on.
- Dumblydorr 7y ago
  Exactly, these are brick and mortar resources and skilled labor being poured into personal assets, not into infrastructure or affordable housing or charitable causes. If all these mega homes or mega expenditures of any kind were instead more usefully applied, capitalism would feel a much friendlier and just system.
johnchristopher 7y ago
I am no economist but a 50% decrease in price value is going to leave some scars on the performance of some portfolios. That lack of revenue (or growth) will be passed to the weakest link: the consumer.
bilbo0s 7y ago
Yep. Functions as it should. It almost seems like a majority of people expect that the nature of supply and demand should not apply to real estate.
- woofie11 7y ago
  Which is a fair expectation to have. Free markets are nearly optimal for commodities, restaurants, and similar sorts of goods, as well as many competing small businesses. They grind along for IP, utilities, and some sectors of education, as well as large businesses. They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education. Curiously, much of this was predicted by Adams in Wealth of Nations (read his sections on real estate; they sound downright dystopian). Even more curiously, China has privatized all the sectors where free markets work, kept public all the ones where they don't, and their economy exploded. The US economy exploded with free markets when it was driven by essentially commodity manufacturing. As IP, finance, and real estate became more important, it began to fall behind.
  - dsfyu404ed 7y ago
    >They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education. You just rattled off a list of sectors where the free market is the least free (though in the case of finance I think they more than earned it). Of the four things you mentioned I would deregulate two, regulate the crap out of one and get the federal government out of the business of backing loans on another.
    - low_poly_shiba 7y ago
      hmmm you elsewhere, on a topic about the harrowing conditions of FB moderators, claim that "there's a lot of variance between individuals ... I'm not the kind of person that's particularly bothered by graphic violence. My opinion of humanity is dark enough to accommodate it" https://news.ycombinator.com/item?id=20223267 https://news.ycombinator.com/item?id=20223267 maybe what you consider an ideal world or even positive outcomes or even onerous regulations are not what others have in mind, what with your "dark views of humanity" and all? cause it sounds to me like you deeply believe in naturalistic hierarchies
TheOtherHobbes 7y ago
That depends on whether they took on a mortgage. If they're indebted and were considered a low-risk borrower, then it matters very much if a lot of them suddenly become a default risk.
simonh 7y ago
Loss of wealth is never good for anyone. Start with the waste of resources – money was spent on pointless construction and creation that have much lower value than expected. Empty unsold houses benefit no one. Those resources could have been used productively for long term benefit. It’s in all of our interests to discourage the waste of resources like that and encourage productive uses. Then there’s the re-allocation of resources to cover the loss. If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss, withdrawing that capital from the cycle of investment in productive economic activity. Interest and profits on investment don’t come from nowhere, they’re generated from the productive activities those investments support. Now there is less capital available to do useful economic work.
- pjc50 7y ago
  > If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss This doesn't make sense? Firstly, the point at which the capital was withdrawn from savings was the time the house was built - savings turned into a physical capital asset. That house has lost value, but that doesn't affect liquidity. Secondly, there's a global capital glut to start with - that's why interest rates are so low and people are building McMansions.
  - simonh 7y ago
    The couple sells the house and then wants to do something else with the money they get back. Maybe they buy another house or give money to their children or both. They still want to do those things, but they have $1m less from selling the property than they expected, so they liquidate $1m in savings which they wouldn't have otherwise needed to do. Alternatively they spend $1m less, or invest $1m less, which is $1m less revenue or capital for people and businesses in the rest of the economy. Either way it's not good. It's a bit simplistic, but the point is there is a real loss of wealth in society. If the house is sold the new buyer got a bargain, but they probably just got more house for the same money spent on their side. That's good for them, but on that end of the transaction it's likely to be roughly economically neutral, in terms of the whole economy.
noobermin 7y ago
People don't like it when supply and demand applies to them, especially wealthier folk like those who can build mansions.

by imgabe 7y ago

tomatocracy 7y ago

At a macro level and over the long term, even if prices fall and this means that slightly less rich people can buy them instead, big houses are more expensive and more work to look after and maintain and there is a limit to the number of people willing and able to do that. The ultimate end result could be that some of these houses become derelict, which isn’t really good for anyone. This is what happened to a good number of the large country houses in England after food prices fell in the late 19th and early 20th century.

0xDEFC0DE 7y ago
Knock $10-20k off the price and put that towards hiring people to clean it. Bundle the house sale with cleaning services for a few years or something. The amount of people willing to deal with it will grow as the price falls, but that's not newsworthy. That's the uncomfortable truth for people wanting to sell.
- kevin_thibedeau 7y ago
  There's still energy costs wasted on heating and cooling 4x more space than you need.
  - tomatocracy 7y ago
    Not just energy costs - replacements for kitchen/bathroom fittings as they fail, painting/decorating, cleaning, basic maintenance to ensure the place doesn’t fall down, keeping gardens from becoming overgrown, the list goes on.
Dumblydorr 7y ago
Exactly, these are brick and mortar resources and skilled labor being poured into personal assets, not into infrastructure or affordable housing or charitable causes. If all these mega homes or mega expenditures of any kind were instead more usefully applied, capitalism would feel a much friendlier and just system.

johnchristopher 7y ago

I am no economist but a 50% decrease in price value is going to leave some scars on the performance of some portfolios. That lack of revenue (or growth) will be passed to the weakest link: the consumer.

bilbo0s 7y ago

Yep. Functions as it should. It almost seems like a majority of people expect that the nature of supply and demand should not apply to real estate.

woofie11 7y ago
Which is a fair expectation to have. Free markets are nearly optimal for commodities, restaurants, and similar sorts of goods, as well as many competing small businesses. They grind along for IP, utilities, and some sectors of education, as well as large businesses. They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education. Curiously, much of this was predicted by Adams in Wealth of Nations (read his sections on real estate; they sound downright dystopian). Even more curiously, China has privatized all the sectors where free markets work, kept public all the ones where they don't, and their economy exploded. The US economy exploded with free markets when it was driven by essentially commodity manufacturing. As IP, finance, and real estate became more important, it began to fall behind.
- dsfyu404ed 7y ago
  >They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education. You just rattled off a list of sectors where the free market is the least free (though in the case of finance I think they more than earned it). Of the four things you mentioned I would deregulate two, regulate the crap out of one and get the federal government out of the business of backing loans on another.
  - low_poly_shiba 7y ago
    hmmm you elsewhere, on a topic about the harrowing conditions of FB moderators, claim that "there's a lot of variance between individuals ... I'm not the kind of person that's particularly bothered by graphic violence. My opinion of humanity is dark enough to accommodate it" https://news.ycombinator.com/item?id=20223267 https://news.ycombinator.com/item?id=20223267 maybe what you consider an ideal world or even positive outcomes or even onerous regulations are not what others have in mind, what with your "dark views of humanity" and all? cause it sounds to me like you deeply believe in naturalistic hierarchies

TheOtherHobbes 7y ago

That depends on whether they took on a mortgage. If they're indebted and were considered a low-risk borrower, then it matters very much if a lot of them suddenly become a default risk.

simonh 7y ago

Loss of wealth is never good for anyone. Start with the waste of resources – money was spent on pointless construction and creation that have much lower value than expected. Empty unsold houses benefit no one. Those resources could have been used productively for long term benefit. It’s in all of our interests to discourage the waste of resources like that and encourage productive uses. Then there’s the re-allocation of resources to cover the loss. If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss, withdrawing that capital from the cycle of investment in productive economic activity. Interest and profits on investment don’t come from nowhere, they’re generated from the productive activities those investments support. Now there is less capital available to do useful economic work.

pjc50 7y ago
> If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss This doesn't make sense? Firstly, the point at which the capital was withdrawn from savings was the time the house was built - savings turned into a physical capital asset. That house has lost value, but that doesn't affect liquidity. Secondly, there's a global capital glut to start with - that's why interest rates are so low and people are building McMansions.
- simonh 7y ago
  The couple sells the house and then wants to do something else with the money they get back. Maybe they buy another house or give money to their children or both. They still want to do those things, but they have $1m less from selling the property than they expected, so they liquidate $1m in savings which they wouldn't have otherwise needed to do. Alternatively they spend $1m less, or invest $1m less, which is $1m less revenue or capital for people and businesses in the rest of the economy. Either way it's not good. It's a bit simplistic, but the point is there is a real loss of wealth in society. If the house is sold the new buyer got a bargain, but they probably just got more house for the same money spent on their side. That's good for them, but on that end of the transaction it's likely to be roughly economically neutral, in terms of the whole economy.

noobermin 7y ago

People don't like it when supply and demand applies to them, especially wealthier folk like those who can build mansions.