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I agreee that speculation on property solely as an asset is an issue, but don't really agree with the premise early in the article around the growth of cities.
by stepbeek 5y ago
I agreee that speculation on property solely as an asset is an issue, but don't really agree with the premise early in the article around the growth of cities. The argument strikes me as something like this:
* An increase in the size of urban areas would increase GDP by 4%
* Anything which blocks this growth is bad
* Home ownership blocks this increase
* Therefore, home ownership is bad
The implicit premise is that anything which increases GDP is good. Is it? An obvious counterexample is around environmental regulation. We could almost certainly bump GDP in the short-term by deregulating, but would suffer the consequences a few decades down the line.
I really like the economist and they make their bias clear, but I am a little frustrated with the rhetoric that ever growing GDP is an ethical imperative.
- shuckles 5y agoIt’s easy to say this as someone wealthy enough to spend time commenting on online forums. What is the economic externality of urban infill development?
- ggm 5y agoLoss of greenspace mainly.
- stepbeek 5y ago> It’s easy to say this as someone wealthy enough to spend time commenting on online forums This feels a little ad-hominem. I criticised the argument laid out in the article. Do you agree with the point made in the article? If so, why?
- shuckles 5y agoYou’re making the point that GDP is not a perfect measure, without offering any that are better. It’s easy to wonder who economic growth helps when you are in the diminished marginal returns part of the curve.
- WalterBright 5y ago> I agreee that speculation on property solely as an asset is an issue Speculation helps create a liquid market and stabilize prices.
- Twisell 5y agoJargon an technicalities help creating bubble and loosing focus on what matters for humankind.
- yetihehe 5y agoIn practice, speculation maximises value extracted by speculators. But yes, "maximum bearable" price is stable.
- WalterBright 5y agoAll sellers maximize the sale price.
- yetihehe 5y agoOriginal sellers are makers. They create and sell at reasonable price. Speculators only buy to sell at higher price, thus their only reason to exist is to be the one between people who value something more than it's previous price and those selling at previous price. And they want to buy at lower price before other people can buy at that lower price. They don't contribute anything. They just insert themselves and sell not at reasonable price, but at max price than can be paid.
- WalterBright 5y ago> They create and sell at reasonable price. I'm afraid there's no evidence whatsoever that makers sell at lower prices than speculators. Everyone sells for as much as possible. There's nothing magic about speculators that enable them to get higher prices. > And they want to buy at lower price before other people can buy at that lower price. Every buyer tries to do that. > They don't contribute anything. Yes, they do. They provide liquidity, and reduce volatility. For example, the only reason a seller sells to a speculator is if the speculator offers to sell at a higher price than others. The only reason a buyer buys from a speculator is the speculator is offering it at a lower price than others. There is no magic "speculator market" that operates under different rules and different prices.
- imtringued 5y agoSpeculation isn't the problem. Speculation is like a time machine for prices. Speculators use information to discover the true price of an asset and keep buying until the difference between the market price and the "true price" shrinks to 0. In other words, they are making the market more efficient for buyers and sellers. Buyers benefit when the asset would be overpriced because of volatility. Sellers benefit when the asset would be undervalued because of volatility. It turns out that the price of housing will go up in the future because of various reasons (primarily migration), but that information is available today. So what does the price time machine do? It transports future prices in the present and oh boy are those prices unbelievably high. The speculators are essentially whistleblowers. They are saying that the emperor has no clothes and promptly get burned on the stake. Let's assume the opposite, that speculation itself was the problem, and not an external factor that is only brought to light. It would imply that the market price is exceeding the "true price" of the underlying asset and therefore the speculator will have a hard time selling his asset, unless another speculator buys the asset in an infinite loop. However, it doesn't change the fundamental problem, because at some point someone has to take the "true price" - market price loss because they are massively overpaying and cannot find a greater fool. If you thought the latter was the case then you could just decide against buying a house because it is overpriced. Of course the problem is that no long lasting crash has occurred, even 2008 wasn't bad enough to keep house prices on a downward trend.
- Nursie 5y agoYou ignore the fact that speculation adds significant demand in itself. If speculators can be seen to make money, more will join the market. This drives demand beyond what would be present if only owner-occupiers and landlords were buying. And what’s more in some markets like London it removes real-estate from use entirely as investment properties sit empty. Your idea of a ‘true’ price is silly and part of the reason prices may go up in future is indeed the presence of ever more speculators. As they drive prices up, people end up paying more for smaller properties, stretching out their debt load just a little further, and raising the whole market. There is no ‘True’ price.
- gmtx725 5y agoWhat even is a "true price", ontologically speaking?