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Honest question, from an economically ignorant perspective: If people hold houses to speculate with the price of real state, that makes the price I pay for the

by kace91 6y ago

Honest question, from an economically ignorant perspective: If people hold houses to speculate with the price of real state, that makes the price I pay for the necessity of a place to live way more expensive than it would be otherwise (this is something I empirically know to be true). Why doesn't the same logic apply to water once it's possible to speculate with it?

mikaeluman 6y ago
To your example. During the US housing price bubble (so called) that deflated 08; it was generally much cheaper to rent. So a user did not necessarily have to buy a house. And when you purchase real estate far beyond what is needed, then obviously you will have to rent because you can't occupy it all by yourself. The true price of living hasn't changed just because people are overvaluing real estate. Consider water. Say a speculator drives the price way up in the sky to the extent that ordinary people are affected. What will said speculator do with these contracts? Either she will sell them (and the price rebounds), or she will be stuck with tons of water which is burdensome and incurs costs to store. So clearly she will want to sell this water and at that point be subject to the market demand for it. In other words, undue speculation drives you out of business. Now, regarding this future contract it is financially settled based on the actual index value of what water costs. So it's not capable of being driven by silly speculation at all.
gruez 6y ago
>If people hold houses to speculate with the price of real state ...isn't that one of the problems with housing? It already allows for speculation, and in addition to that, it's heavily biased towards people speculating in one direction: up. People can be leveraged up to 20x (aka. 5% down payment), whereas for stocks it's limited to 2x[1]. There's also no meaningful way to short housing prices. You can't short-sell a house, and there aren't derivatives for housing (futures/options). The latter would also help increase supply because speculators can speculate on housing without tying up the underlying asset (ie. stories of speculators buying houses and leaving them vacant because they don't want to deal with the hassle/risk of tenants). [1] https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html https://www.sec.gov/reportspubs/investor-publications/invest...

by kace91 6y ago

mikaeluman 6y ago

To your example. During the US housing price bubble (so called) that deflated 08; it was generally much cheaper to rent. So a user did not necessarily have to buy a house. And when you purchase real estate far beyond what is needed, then obviously you will have to rent because you can't occupy it all by yourself. The true price of living hasn't changed just because people are overvaluing real estate. Consider water. Say a speculator drives the price way up in the sky to the extent that ordinary people are affected. What will said speculator do with these contracts? Either she will sell them (and the price rebounds), or she will be stuck with tons of water which is burdensome and incurs costs to store. So clearly she will want to sell this water and at that point be subject to the market demand for it. In other words, undue speculation drives you out of business. Now, regarding this future contract it is financially settled based on the actual index value of what water costs. So it's not capable of being driven by silly speculation at all.

gruez 6y ago

>If people hold houses to speculate with the price of real state ...isn't that one of the problems with housing? It already allows for speculation, and in addition to that, it's heavily biased towards people speculating in one direction: up. People can be leveraged up to 20x (aka. 5% down payment), whereas for stocks it's limited to 2x[1]. There's also no meaningful way to short housing prices. You can't short-sell a house, and there aren't derivatives for housing (futures/options). The latter would also help increase supply because speculators can speculate on housing without tying up the underlying asset (ie. stories of speculators buying houses and leaving them vacant because they don't want to deal with the hassle/risk of tenants). [1] https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html https://www.sec.gov/reportspubs/investor-publications/invest...