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> Huge numbers of ordinary people have been lulled into spending vast amounts of money buying property in the patently false belief that property values never g

> Huge numbers of ordinary people have been lulled into spending vast amounts of money buying property in the patently false belief that property values never go down over the long term. I don't know how to evaluate that claim as it's currently phrased. Adjusting for inflation in either the US or UK we see that whilst house prices do of course go up and down, like any asset, the trend is upwards. So I would say that "property values never go down over the long term" is true-ish. The data says that if I put a gun to your head and said "I'm going to select a house at random in the UK or USA: will its value increase or decrease over the next twenty years?" you would be advised to say "Increase" (before asking a bunch of questions about whether this is really the most efficient way to determine whether someone lives or dies). > The UK and the USA have seen a couple of crashes where over-leveraged property investors have gone broke That's different from property values not going down in the long term, right? > Does our society have an obligation to rescue property investors who are on the verge of bankruptcy? This doesn't scan to me as I've understood it. Is the logic that because people have been "lulled into believing" that property is "safe", there's an obligation to rescue them because of their inexpertness? I guess that's suggestive of the fact that you do not think they would have entered the market had they known about the possibility of it happening, right? (Assuming that anyone who was told that it would DEFINITELY happen to them would not have entered the market.) > There is form here, of course. Banks were rescued when their bets on the property market went bad. If I understand your logic then banks are professionals getting the market wrong, which implies a much more unlikely and unpredictable disaster. In any case I think the argument here is chiefly utilitarian: far more people benefit from a bank bailout than individual property investors being bailed out. > Treating property as a consumer-grade investment is doing harm to our society. From the position you've outlined above I think it's more likely that some form of fiscal illiteracy is the real issue, not the democratising of financial markets so that consumers can participate in them.

marcus_holmes 6y ago
> Adjusting for inflation in either the US or UK we see that whilst house prices do of course go up and down, like any asset, the trend is upwards. Obviously, at some point houses will stop rising in price in real terms. Because if they don't, then eventually no-one will be able to buy a house. There are signs we're reaching this point with the inability of Millenials to get into the housing market. If you held that gun to my head I would definitely say "decrease". I think the rising trend over the last ~50 years is because of women entering the workforce, but that's a whole 'nother subject. > Is the logic that because people have been "lulled into believing" that property is "safe", there's an obligation to rescue them because of their inexpertness? That'll be their reason, yes. But the realpolitik of the situation is that any party who promises to help the housing market is going to be popular. Australia, especially, is vulnerable to this. > From the position you've outlined above I think it's more likely that some form of fiscal illiteracy is the real issue, not the democratising of financial markets so that consumers can participate in them. It's interesting that you jump so readily to the conclusion that I'm an idiot who doesn't know what he's talking about, rather than that you haven't understood what I'm saying. This also happened a few posts ago, until I explained myself in greater detail and you were able to see that I wasn't an idiot. Can we just skip the bit where I'm an idiot this time, assume that I'm not, and work out where your confusion is?
- georgespencer 6y ago
  > Obviously, at some point houses will stop rising Maybe I misunderstand your point. You originally said: > Huge numbers of ordinary people have been lulled into spending vast amounts of money buying property in the patently false belief that property values never go down over the long term. Now I understand you to mean something closer to: Whilst I acknowledge that it has never happened in history, at an indeterminate point in the future I believe that house prices will decline, at which point huge numbers of ordinary people who have been investing in property will have been duped by the myth that property values only go up over the long term. Is that right? So: to date, nobody knows they have been duped (which on the surface looks exactly the same as nobody actually having been duped), because prices in the UK and USA continue to rise, but you think there are people investing in property now who will feel misled by what you see as an inevitable decline in the future. I'll come back to this in a sec. You then went on to say: > The UK and USA have seen a couple of crashes where over-leveraged property investors have gone broke. [...] Does our society have an obligation to rescue property investors? [...] > Treating property as a consumer-grade investment is doing harm to our society. I don't think it's unreasonable to conclude that your logic was: 1. People are being misled that property values don't go down. They do. 2. We've already seen prices go down and people get wiped out, which supports 1. 3. Society treats consumer speculation in the property market differently to institutional speculation, even though consumers clearly have a less sophisticated understanding than institutions (see 1). 4. Overall, the democratisation of property markets for consumer investment is doing harm to our society. It seems like you're actually making a series of separate points? You do not believe that the fact that housing markets crashed in the UK and US supports your point that house prices will inevitably experience sustained decline, right? I guess I'm confused: you're saying consumers are oblivious to the dangers of the market, but at the same time pointing out that market-wide crashes have wiped people out. In the absence of data to support either claim it seems like you're trying to have your cake (consumers are oblivious and pump money into an unsafe market) and eat it too (it's obvious that the market is unsafe in the long term because we -- consumers -- have seen such huge catastrophic short term crashes in the past). Coming back to the sustained crash. When you say: > [...] the patently false belief that property values never go down over the long term. In other words, that property investing is "safe". The UK and USA have seen a couple of crashes where over-leveraged property investors have gone broke. It feels like you're implying that the property market is imperilled by the imminent risk of a big crash which will be the catalyst for a sustained fall/correction to prices, which renders investment in it unsafe. It seems far more likely that real price growth slows, stagnates, and then falls slowly into correction. You go from talking about the structural value limits of an asset to the kind of rapid contraction caused by a deep recession. Put another way: if you believe that prices will drop suddenly (which surely must be what you're suggesting if you believe the market to be "unsafe"), what thing do you expect to happen to correct price suddenly? You seem to drive at it here: > There are signs we're reaching this point with the inability of Millenials to get into the housing market. I would assume government intervention in some sense. Either introducing more stock into the market for sale, or helping Millennials to buy? These are not things which will cause the kind of rapid unsafe decline which would leave people feeling duped. In particular, government intervention is likely to be sensitive towards those who already have properties, as you seem to believe when you say: > the realpolitik of the situation is that any party who promises to help the housing market is going to be popular. Australia, especially, is vulnerable to this. So clarifying questions: 1. When you say "unsafe" what do you mean? 2. What do you envisage happening that causes a fall? 3. Do you believe it's likely that there would be a slowing of growth, followed by a period of stagnation, before a gentle decline? 4. If yes to 3, why do you believe that this is an unsafe market for the long term investor? Homeownership has been in decline for a long time, btw. See UK homeownership peaks as of 2018 when segmented by year of birth[1]: 1960-64: 76% 1965-69: 72% 1970-74: 66% 1975-79: 59% 1980-84: 43% 1985-89: 26% I'm not persuaded that house prices outgrowing real wage growth is the core issue when you think about the ~40 year trend of missing targets for new houses being built and the fact that the UK's population has grown from 52m => 67m in the time period of the above data. But maybe! > It's interesting that you jump so readily to the conclusion that I'm an idiot who doesn't know what he's talking about, rather than that you haven't understood what I'm saying. I'm not concluding or saying, and have not concluded or said, that you're an idiot. I'm suggesting that whilst you say: > consumer-grade investment is doing harm to our society I believe that fiscal illiteracy is what is really doing harm to our society. An analogy might be that you blame guns for gun violence, whilst I blame mental health issues. [1] https://www.ifs.org.uk/uploads/publications/bns/BN224.pdf https://www.ifs.org.uk/uploads/publications/bns/BN224.pdf

marcus_holmes 6y ago

> Adjusting for inflation in either the US or UK we see that whilst house prices do of course go up and down, like any asset, the trend is upwards. Obviously, at some point houses will stop rising in price in real terms. Because if they don't, then eventually no-one will be able to buy a house. There are signs we're reaching this point with the inability of Millenials to get into the housing market. If you held that gun to my head I would definitely say "decrease". I think the rising trend over the last ~50 years is because of women entering the workforce, but that's a whole 'nother subject. > Is the logic that because people have been "lulled into believing" that property is "safe", there's an obligation to rescue them because of their inexpertness? That'll be their reason, yes. But the realpolitik of the situation is that any party who promises to help the housing market is going to be popular. Australia, especially, is vulnerable to this. > From the position you've outlined above I think it's more likely that some form of fiscal illiteracy is the real issue, not the democratising of financial markets so that consumers can participate in them. It's interesting that you jump so readily to the conclusion that I'm an idiot who doesn't know what he's talking about, rather than that you haven't understood what I'm saying. This also happened a few posts ago, until I explained myself in greater detail and you were able to see that I wasn't an idiot. Can we just skip the bit where I'm an idiot this time, assume that I'm not, and work out where your confusion is?

georgespencer 6y ago
> Obviously, at some point houses will stop rising Maybe I misunderstand your point. You originally said: > Huge numbers of ordinary people have been lulled into spending vast amounts of money buying property in the patently false belief that property values never go down over the long term. Now I understand you to mean something closer to: Whilst I acknowledge that it has never happened in history, at an indeterminate point in the future I believe that house prices will decline, at which point huge numbers of ordinary people who have been investing in property will have been duped by the myth that property values only go up over the long term. Is that right? So: to date, nobody knows they have been duped (which on the surface looks exactly the same as nobody actually having been duped), because prices in the UK and USA continue to rise, but you think there are people investing in property now who will feel misled by what you see as an inevitable decline in the future. I'll come back to this in a sec. You then went on to say: > The UK and USA have seen a couple of crashes where over-leveraged property investors have gone broke. [...] Does our society have an obligation to rescue property investors? [...] > Treating property as a consumer-grade investment is doing harm to our society. I don't think it's unreasonable to conclude that your logic was: 1. People are being misled that property values don't go down. They do. 2. We've already seen prices go down and people get wiped out, which supports 1. 3. Society treats consumer speculation in the property market differently to institutional speculation, even though consumers clearly have a less sophisticated understanding than institutions (see 1). 4. Overall, the democratisation of property markets for consumer investment is doing harm to our society. It seems like you're actually making a series of separate points? You do not believe that the fact that housing markets crashed in the UK and US supports your point that house prices will inevitably experience sustained decline, right? I guess I'm confused: you're saying consumers are oblivious to the dangers of the market, but at the same time pointing out that market-wide crashes have wiped people out. In the absence of data to support either claim it seems like you're trying to have your cake (consumers are oblivious and pump money into an unsafe market) and eat it too (it's obvious that the market is unsafe in the long term because we -- consumers -- have seen such huge catastrophic short term crashes in the past). Coming back to the sustained crash. When you say: > [...] the patently false belief that property values never go down over the long term. In other words, that property investing is "safe". The UK and USA have seen a couple of crashes where over-leveraged property investors have gone broke. It feels like you're implying that the property market is imperilled by the imminent risk of a big crash which will be the catalyst for a sustained fall/correction to prices, which renders investment in it unsafe. It seems far more likely that real price growth slows, stagnates, and then falls slowly into correction. You go from talking about the structural value limits of an asset to the kind of rapid contraction caused by a deep recession. Put another way: if you believe that prices will drop suddenly (which surely must be what you're suggesting if you believe the market to be "unsafe"), what thing do you expect to happen to correct price suddenly? You seem to drive at it here: > There are signs we're reaching this point with the inability of Millenials to get into the housing market. I would assume government intervention in some sense. Either introducing more stock into the market for sale, or helping Millennials to buy? These are not things which will cause the kind of rapid unsafe decline which would leave people feeling duped. In particular, government intervention is likely to be sensitive towards those who already have properties, as you seem to believe when you say: > the realpolitik of the situation is that any party who promises to help the housing market is going to be popular. Australia, especially, is vulnerable to this. So clarifying questions: 1. When you say "unsafe" what do you mean? 2. What do you envisage happening that causes a fall? 3. Do you believe it's likely that there would be a slowing of growth, followed by a period of stagnation, before a gentle decline? 4. If yes to 3, why do you believe that this is an unsafe market for the long term investor? Homeownership has been in decline for a long time, btw. See UK homeownership peaks as of 2018 when segmented by year of birth[1]: 1960-64: 76% 1965-69: 72% 1970-74: 66% 1975-79: 59% 1980-84: 43% 1985-89: 26% I'm not persuaded that house prices outgrowing real wage growth is the core issue when you think about the ~40 year trend of missing targets for new houses being built and the fact that the UK's population has grown from 52m => 67m in the time period of the above data. But maybe! > It's interesting that you jump so readily to the conclusion that I'm an idiot who doesn't know what he's talking about, rather than that you haven't understood what I'm saying. I'm not concluding or saying, and have not concluded or said, that you're an idiot. I'm suggesting that whilst you say: > consumer-grade investment is doing harm to our society I believe that fiscal illiteracy is what is really doing harm to our society. An analogy might be that you blame guns for gun violence, whilst I blame mental health issues. [1] https://www.ifs.org.uk/uploads/publications/bns/BN224.pdf https://www.ifs.org.uk/uploads/publications/bns/BN224.pdf