5 ms·

You can if you're in a liquidity trap. Question is, are we in one now?

robocat 5y ago
I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem! On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments. Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income). I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner. Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage). Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
- greesil 5y ago
  Wrong liquidity.
- bluGill 5y ago
  Eventually people decide they have enough house.
- notJim 5y ago
  > Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small. You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
  - greesil 5y ago
    You do have to build, but low interest rates drive capital to seek investments with lower average returns. Private equity used to stay out of housing, but now there are funds to buy up trailer parks. I hypothesize this is driving some of the insatiable demand. Higher real interest rates, or more productivity growth so there's better places to park the ocean of money, or taxation would do wonders.
- alliao 5y ago
  yeah on those cheap short term rates, they aren't cheap. https://www.interest.co.nz/borrowing https://www.interest.co.nz/borrowing kiwi dollar is the original bitcoin.. small usage, wild volatility, widely traded.

I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem! On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments. Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income). I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner. Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage). Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.

greesil 5y ago
Wrong liquidity.
bluGill 5y ago
Eventually people decide they have enough house.
notJim 5y ago
> Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small. You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
- greesil 5y ago
  You do have to build, but low interest rates drive capital to seek investments with lower average returns. Private equity used to stay out of housing, but now there are funds to buy up trailer parks. I hypothesize this is driving some of the insatiable demand. Higher real interest rates, or more productivity growth so there's better places to park the ocean of money, or taxation would do wonders.
alliao 5y ago
yeah on those cheap short term rates, they aren't cheap. https://www.interest.co.nz/borrowing https://www.interest.co.nz/borrowing kiwi dollar is the original bitcoin.. small usage, wild volatility, widely traded.