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Low interest rates in advanced countries have pushed money into real estate

362 points by 609venezia 5y ago

tejohnso 5y ago
https://archive.md/REmb8 https://archive.md/REmb8
sokoloff 5y ago
This headline doesn’t seem all that surprising (nor does the article drop any particularly deeper revelations). As soon as “indoors” was invented, humans preferred to live that way, even though it was expensive as compared to outdoors. I don’t see a reason to think that would change and, especially with people spending more time in their home and less money on services and experiences, would expect that more money would flow into improving the at-home experience, bidding up housing.
deepnotderp 5y ago
IMO this is the single biggest malaise in society. “Investing” (speculating) in real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter, a basic necessity. It also directs capital away from investing in technology and businesses. Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. Adam Smith even called landlord’s right “theft”.
- skybrian 5y ago
  Yes, there are often undeserved windfalls. But I think you're missing something? Buildings don't come out of nowhere and they don't maintain themselves. Abandoned buildings deteriorate. They need to be protected. (Sometimes, unfortunately, from the tenants.) There is a social role to be played here, whether homeowners do it themselves or landlords do it.
- dmingod666 5y ago
  Not just this, the behaviours that the investment protection brings like activism against denser housing in their vicinity is just plain cruel.
- api 5y ago
  https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism TL;DR: things that people produce such as labor, products, and services are not taxed at all. No payroll taxes, no sales tax, no income tax, and no capital gains tax on investments in productive activity or human-made capital. Things that people did not produce such as land or the right to extract natural resources are taxed. For land the land value is taxed, but this does not include the value of things built on the land. You're basically billed for the right to "own" things that existed before any of us were born. Since not much else is taxed, these taxes could be rather steep. This strongly incentivizes efficient use of land and natural resources and discourages non-productive squatting on them. You would not see, for example, a bunch of self-storage places and gigantic sprawling car washes in Silicon Valley. The land value taxes in such an area would be far too high to justify anything but highly efficient productive uses of the land such as housing, manufacturing, offices, etc. Vertical construction would be highly incentivized in high value areas.
  - deepnotderp 5y ago
    Yeah I’m personally a fan of Georgism but realistically something like a LVT is too radical to implement. I think that a carefully thought out property tax code (eg higher taxes for lower density buildings) can get you 80% of the way to the effects of a LVT while being pragmatic enough to implement today.
    - larsiusprime 5y ago
      You could actually do a lot to adapt existing property tax regimes into something like a very close approximation of an LVT. Step 1 would just be improving the quality of assessments to take advantage of the state of the art of the latest mass appraisal methods (which requires no change in law, just requires you to influence the training and/or appointment/election of local assessors) from the last 15 years. Step 2 would be lowering the tax rate on improvements and shifting the burden off of buildings and onto land; this is barred in certain states but is perfectly legal in others.
      - sokoloff 5y ago
- HPsquared 5y ago
  Houses are not zero-sum, as it's possible to build more. Even for land, the value is all about how developed it is, which is not zero-sum: one can always develop more land. In England for example, known as a densely-packed country, only about 2% of land is actually built on, and of that 2% only a tiny fraction is actually dense.
  - francisofascii 5y ago
    The value is very much about the location of the land. The neighborhood, school district, proximity to parks or transit. The actual structure matters less and less these days. It is "possible" to build more, but rarely politically viable.
    - HPsquared 5y ago
      Schools, parks and transit are not static and new ones can be built. Those all fall under "development".
      - herlitzj 5y ago
        You say this as if it's fast or easy. All of these can easily take 10s of years build from conception to completion due to a myriad of reasons. Land acquisition, federal state and local funding, environmental review, court cases, zoning changes, public review proceses, etc. It's not like someone decrees that a school should be built and 6 months later it's up and running. And the school is the easy one on that list :)
  - tlholaday 5y ago
    > Houses are not zero-sum, as it's possible to build more. Every newly-built house lowers the value of every already-built house. It is straightforward to specify initial conditions where the result is negative-sum.
    - ushtaritk421 5y ago
      It lowers the "value" as a monopolistic asset class but not the "housing/day units" value. The second value is what society should care about increasing, and it should go out of it's way to destroy the first kind of "value".
- hyuuu 5y ago
  how would you direct private capital to maintain/build living spaces then? Unless you are thinking to have government to be responsible to do that, building more to keep up with the demand + maintenance of the existing ones. It does work in places like Singapore, but I am not sure I would trust the US Gov's execution.
  - deepnotderp 5y ago
    By separating the productive activities of construction and administration from the parasitic activity of rent seeking.
    - golemiprague 5y ago
      Some people want to rent and some other people supply it, there is nothing parasitic about it, it is like any other trade.
    - kansface 5y ago
      Rent seeking isn’t parasitic. It provides liquidity to the housing market where it wouldn’t otherwise exist. You want to move to a different city, renting doesn’t exist, then what? How does that work for anyone who can’t make a downpayment, or anyone who is in a hurry, or at all really? Nationalized housing in the US tends is even more dystopian than the private sector. If you want a vibrant, sane, and fair rental market, we’d need an actual free and fair market in the first place.
      - clairity 5y ago
        rent-seeking is the economic concept of income being captured from simply owning an asset rather than from productivity. its literally anti-capitalistic, as it's always a market distortion that creates the coercive force necessary to inefficiently funnel income this way. fair markets would compete away rent-seeking in short order. that's different from providing rental housing, whereby owners earn rent by constantly working to provide safe and desirable housing. capitalism is premised on the idea of using markets to drive down prices to the marginal cost of production plus a small industry-/market-specific risk premium. rent-seeking is entirely counter to that.
- VictorPath 5y ago
  > Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. From World War II to the early 1970s, the utilization of existing US capital equipment rarely dipped during the worst of a deep recession, to what have been the highest levels of capital capacity utilization rate since the 2008 financial crisis. The old lows have been about what the new highs have been. This indicates an overabundance of capital investment and overproduction, which was the opinion of former GE CEO Jack Welch. https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren...
- ok123456 5y ago
  mao was right
  - AnimalMuppet 5y ago
    That particular cure is far worse than the disease.
- jonplackett 5y ago
  The weird thing about house prices is it’s the exact same house that now costs waaaay more. What I mean is, for example, my house is 130 years old. So it’s in a _worse_ state than it was 20 years ago. But it costs probably 10 X more. It’s not like houses are a fine wine that matures. Nor is it in any way upgraded or better like a new technology would be. But up in cost they go, indefinitely. Exponentially. Pointlessly. A complete and utter failure of policy.
  - tibiahurried 5y ago
    What's 10x is not the house, but the land, the physical space the house seats on. The land is a finite resource, thus it can only appreciate in value.
    - baq 5y ago
      Only if population grows. Land will depreciate if there are less people to live on it.
      - snidane 5y ago
        In the 21st century, even if country population stagnates or even drops, population still grows in cities compared to rural areas.
    - liketochill 5y ago
      Not just land, but land in desirable places with amenities like roads, sewer, water, power, schools, food stores near by.
    - Spooky23 5y ago
      Only if the capital is available. Speculators tend to use borrowed money to do their thing and drive prices up. Good times until they’re not, then boom. I have family who made a fortune off the backs of people living under this delusion in the 1980s and the 1960s.
    - batshit_beaver 5y ago
- markus_zhang 5y ago
  Capital flows to where it can grow. I don't see this against the principle of capitalism. IMHO capitalism has one and only one rule: grow your capital as fast as you can. That said, if the return rate of investing in real estate is lower than the rate in technology, then naturally more money will pour into technology.
- deleted 5y ago
  [deleted]
- wyager 5y ago
  Storing wealth doesn't redirect capital away from businesses. It represents the possessor deciding to temporarily step away from the continuous auction process to allocate productive capacity ("the market") which increases the purchasing power of those who remain, to either invest in capital goods or consumable goods. Buying monetized assets (real estate, gold, bitcoin) is not economically harmful - in fact, it's better than reflexively buying index funds, which is basically the other option.
- antupis 5y ago
  There is simple solution for this https://en.m.wikipedia.org/wiki/Georgism https://en.m.wikipedia.org/wiki/Georgism but some reason georgism is still pretty marginal thing.
  - bumby 5y ago
    That requires a somewhat radical shift in the societal perceptions of property rights. When the U.S. Constitution specifically mentions intellectual property rights, I don't think it could ever be construed as a "simple solution" to change that definition.
    - tryptophan 5y ago
      And as much as I love georgeism in theory, it is in practice very difficult to calculate an accurate land value separate from what is built on that land.
- i_have_an_idea 5y ago
  Well, maybe, but think of the flip side of this. I've worked very hard to earn X amount of dollars, however the monetary policies of banks around the world have pushed inflation up, essentially eating up my savings, all the while pushing the interest rate on deposits to zero and below. I would like to not lose the purchasing power that I've earned, so my only choice is to invest in something. I also want to invest in something as low risk as possible; if my hand wasn't forced, I'd be happy to keep my money at the bank at 2%. Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets. And, as a small-time investor, I don't have access to private deals or markets. So, that leaves real estate. I don't put my money there because I want to drive up the cost of shelter for anyone, I do it because I don't have any other reasonable way to protect my savings.
  - toomuchtodo 5y ago
    You’re trying to store purchasing power as structural macro economic and demographic changes occur. This is challenging, at best. Look to Japan for what the future holds.
    - saiya-jin 5y ago
      Not every country is, or ever will be, like Japan. I would say most of them won't during our lives. I agree with OP, if you just leave hard earned money of us middle class sit in the bank, it will be eaten away by inflation and fees. Its what our parents did, and its properly dumb. Risk with markets which most don't understand, or invest into real estate which everybody does at least a bit. Most folks consider only these 2 options. Also, if SHTF, in most cases you will have physical places or even land to live off, instead of few bank statements. People will still have to live somewhere, and there is constantly more of us.
      - toomuchtodo 5y ago
        All countries eventually end up as Japan. India and Africa will race to be last. China is already somewhere between 1.1 and 1.3 total fertility rate. Sustained sub replacement rates (<2.1 fertility rate) locks in population momentum. This is important because age of labor and consumers directly influences macro economic conditions, which trickles down to investment returns. https://ourworldindata.org/uploads/2014/02/World-population-by-level-of-fertility-without-projections-768x538.png https://ourworldindata.org/uploads/2014/02/World-population-...
- snidane 5y ago
  This is not an innate trait of capitalism. This is due to tax favorability of land speculation compared to other options. Add zero interest rates to it and accelerate flows of all the extra money to into further land speculation. I can easily imagine a society, capitalistic or not, that doesn't subsidise land speculation, which doesn't suffer from real estate bubbles.
- p0larbear 5y ago
  " It also directs capital away from investing in technology and businesses." Empirically this does not seem like a problem in the US at the moment. Large US banks are starved for lending opportunities, and turning away deposits for lack of balance sheet. The Federal Reserve bought corporate bonds. Lending conditions are loose (see links) https://fred.stlouisfed.org/series/DRTSCILM https://fred.stlouisfed.org/series/DRTSCILM https://fred.stlouisfed.org/series/DRSDCIS https://fred.stlouisfed.org/series/DRSDCIS https://fred.stlouisfed.org/series/NFCICREDIT https://fred.stlouisfed.org/series/NFCICREDIT https://fred.stlouisfed.org/series/NFCI https://fred.stlouisfed.org/series/NFCI
- jspaetzel 5y ago
  The ability to transfer property quickly thanks to investors does provide some value. However, sitting on property and collecting rent is essentially theft. To fix this we need more incentives that reward the use of property more then the ownership of it.
  - sokoloff 5y ago
    Property being rented is being used.
  - carom 5y ago
    I have a 4 unit apartment building. I live in one unit and make the others available for people to rent out. My alternative, which I am strongly considering due to what a pain in the ass this is, is to convert it to a single family home. Would you prefer me to take these units off the market? I can afford the mortgage by myself. I won't have to deal with the city over problems $600 / month rent control tenants create when they were mad at the last owners. I won't have to pay $6k going on $20k to evict a tenant who requests a jury trial, not to mention house them for free for 6 months. My city already has a housing shortage and I am strongly considering just having an awesome SFH instead of this. Every incentive seems to be against the use of this property. Rent control causes individual landlords to subsidize the poor societal zoning policies. Legacy rent control tenants also distort the market, raising the price of other units at market rate. It also lowers the income that would be put toward building more units. This property is zoned for 15 units and I would love to build those. Any extra income would be going toward that (as is my personal income). Instead the incentives are for this property to limp along so no one has to move ever.
- chrischattin 5y ago
  This is 100% correct and caused by artificially keeping interest rates low. If the price of money was allowed to find it’s natural equilibrium, these distortions wouldn’t be present. It’s anti-capitalist, market intervention by the fed that’s causing inflated asset prices everywhere. Unfortunately, it ends up most hurting the most venerable in society.
- bawolff 5y ago
  Investing can also include making new buildings and structures (e.g. new apt building) which increases amount of shelter available.
- BenoitEssiambre 5y ago
  This is very wrong. Investing in real estate is a real investment when it results in houses being built. In fact it is maybe one of the most timeless and obvious form of investment. People have built and traded dwellings through the ages. Prices have to rise when good land gets scarce and labor gets more expensive. Low interest rates _also_ boost investment in technology and businesses. Raising rates, if you mean central bank rates, would reduce investment in both houses and technology. Raising interest rates is a signal and incentive from central banks to not invest in anything and instead hold on to government paper. Raising rates means funding the wealthy's savings by providing them a backstop. When they can't find assets that retain sufficient value on the private markets, they can just hold to government paper having above market returns. I wrote more here a while back: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a?source=friends_link&sk=cb180b2cf186b263b6c6c70ad29bc36e https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...
  - deepnotderp 5y ago
    When people say “investing” in real estate they generally mean buying existing houses, not investing in construction projects. And “throughout the ages” is nonsensical, slavery is as old as civilization and yet abolishing it led to wealthier and happier societies. Imagine if instead of real estate speculation that capital went into creating new technologies and businesses.
    - BenoitEssiambre 5y ago
      The bidding up of existing ones is a side effect that happens however central banks are more about controlling investment in new ones than the price of existing ones. Higher prices of houses means there is more incentive for them to be built (or repaired) and for the builders to be paid well. Central banks stimulation is meant to make sure this happens to a sufficient degree, just not so much that builders (and workers more generally) are paid too well that it would drive inflation too high.
  - throwaway2048 5y ago
    Its not resulting in housing being built, its resulting in existing stock getting bought and flipped.
- sien 5y ago
  At least 1/3 of people rent in most developed economics. Investing in real estate creates dwellings for them to rent. Food, clothing and shelter are basic needs. Providing one of them is most certainly creating value. Real estate is not zero sum. Having shops, schools, offices, factories and whatnot around your real estate makes it more valuable, not less. There is a problem now around the world in many cities where a great deal of value is created in that government has made it too hard to build new dwellings and the price of dwellings has been rising. However, there are also cities around the world that have had a lot of growth while having reasonably priced houses. In 2000, Houston had a population of 3.8M in 2020 it was 6.3 M. From https://www.macrotrends.net/cities/23014/houston/population https://www.macrotrends.net/cities/23014/houston/population They have also managed this with affordable housing. That's something to learn from.
  - joshlemer 5y ago
    In an ideal world you're right, but in this world where the reality is extreme supply suppression by nimby house owners, real estate is almost zero sum.
  - siquick 5y ago
    You can build houses all day long but that doesn't automatically make them places anyone can thrive in. Sydney (some of the highest house prices in the world) has a few new estates built outside the city but they suffer from no schools, no shops (except a strip mall equivalent), no parks, no tree cover, and general shoddy building work. https://www.theguardian.com/australia-news/2021/nov/16/ultimately-uninhabitable-western-sydneys-legacy-of-planning-failure https://www.theguardian.com/australia-news/2021/nov/16/ultim...
  - deepnotderp 5y ago
    Texas also has high property taxes and Houston has very lax zoning regulations, both things designed to prevent real estate speculation.
- max47 5y ago
  >n real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter And yet there is literally millions of people begging for a opportunity to get a unit in large/rich cities. If there was no value to it, why does everyone cares so much about living there? If you truly believe what you say, than you better never ever complain about home prices. Paying 100$/ft² for a massive modern house in a shithole place is an option that is always there for you if you think location doesn't matter. But let me guess... you want to live in [insert big city near your location] but people richer than you also want to and they priced you out
- globular-toast 5y ago
  Does speculating in anything create any value to society?
mercy_dude 5y ago
> Now, wealth and growth are completely disconnected. This is, of course, behind much of the populist anger in politics today. Affordable housing in particular has become a rallying cry for millennials who can’t afford to buy homes and start families as early as a previous generation did. I am one of those millennials that is forever priced out of the housing market. And that to a large extent has shifted my political belief away from hard left that I once used to be. Especially seeing how the local mostly leftist politicians in SF have basically helped fuel the crisis even further and basically have done nothing. And many neoliberal leftist economist and media outlets even defending the status quo monetary policy that is clearly behind this wealth divide. To my disappointment though as much of a victim clearly as millennials and GenZ are, their political beliefs don’t acknowledge they want a change. It’s as if they expect the same group of people that are largely behind some of the bad policies causing the wealth disconnect are suddenly going to reverse course. A case in point is SF where they keep voting the same old eggheads who have virtually made it possible for the boomers to retire extremely wealthy at the expense of prices out millennials like me. If you vote for the same people expecting some sort of change will happen then spoiler alert. It won’t.
- hyuuu 5y ago
  you are priced out of specific locations, not the whole housing market and those people who are pricing you out of those locations, they themselves are also priced out from other certain high priced locations.
  - deleted 5y ago
    [deleted]
  - mercy_dude 5y ago
    This the classic “pack your bag and move” type of argument much like “learn to code”. For many this is not an option due to job, family and a host of other things. The point in the article I was highlighting was about prices outpacing growth. And that’s a problem. When you have prices doubling almost every 5-10yrs and no chances of slowing down then why even work?
323 5y ago
US has plenty of space. And unlike Europe, you can easily find a large "mostly empty" patch of land. But for some reason new cities are not built anymore. And when someone proposes building a new city inevitably the press fills up with dystopia/rent-seeking/we-should-make-existing-housing-cheaper/... articles.
- alexashka 5y ago
  It's not that surprising. It's not 'profitable' and it requires actual competence. It's the same reason you have meetings where nobody will commit to anything, hoping that some other fool will commit to take on extra responsibility for no extra pay. Politics is exactly like that.
- sgt 5y ago
  How about we build a perfect grid of cities across the US - perfectly spaced 50 miles apart. Mountain in the way? We'll use explosives. /s
- ericmay 5y ago
  Is “building a new city” meaningfully different from just expanding or growing the current city or introducing medium density? I’m supportive of new cities as experimentation projects - think that’s great actually. If it’s take a sprawling suburb and build another one it’s like why would you bother doing that versus just doing the same thing you’re doing now in current cities?
  - 323 5y ago
    I agree with you, expanding cities should be preferred. But that doesn't happen either, maybe because existing cities are surrounded by private lands, or other stuff that is hard to displace, in a litigious place like US.
    - Scarblac 5y ago
      Or don't expand them, make them denser. Hopefully means less travel needed as well.
pjdemers 5y ago
Twenty years from now, when 10,000 baby boomers are dying every day, housing prices will be in free fall, with no end in sight. That's too late for most of us, but today's small children will have no problem buying a house as adults, if they even want one.
- thisisnico 5y ago
  Immigration will make up for the difference.
  - twiddling 5y ago
    https://www.1billionamericans.com/ https://www.1billionamericans.com/
  - cblconfederate 5y ago
    Assuming that people will still want to emigrate to the west
- GoOnThenDoTell 5y ago
  They’ll just increase the immigration rate to make up for it
- inherently_juxt 5y ago
  Nah, large companies will continue to buy up all the dying boomers' homes like they do today. The companies will then jack up the rent on all property in the area. Small kids today will never know ownership unless its through their daddy's company.
- whytaka 5y ago
  Or we might have a commensurate number of immigrants/refugees fleeing the effects of climate change caused by western consumption.
- poulsbohemian 5y ago
  I work in real estate so I'm alway interested in people's hypotheses... knowing that the Millennial and Z generations are both bigger than the Baby Boomers, I'm curious why your hypothesis is that housing prices will be in a free fall rather than continue to be a case of less (desirable) supply relative to demand.
cblconfederate 5y ago
I think it's a generational thing. Old generation wants to sell its wealth at the highest possible prices. Newer generations are not biting completely (and have no problem living in small spaces), hence crypto.
Terry_Roll 5y ago
Is this not demonstrating Maslow's Hierarchy of Needs?
MrPowers 5y ago
This quote seems disconnected from recent observations: > the big government spending programmes of the post-Covid era present a new opportunity to try and push money into more productive sectors, which could ultimately bring wealth and growth back into alignment We've seem some huge big government spending programs recently (monetary expansion and fiscal stimulus) and it's pretty clear the money has flowed into speculative asset classes, equities, and real estate. The conclusion is a non sequitir. Government spending programs have arguably caused the real estate bubble, not sure why more of them would have a different impact. Here are some government programs that would probably help lowering housing prices: * allow for multifamily housing * remove the mortgage interest deduction * implement land taxes instead of property taxes * have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble) * get the government out of the mortgage securitization business
- larsiusprime 5y ago
  Fun fact -- the majority of bank loans are also for real estate, further bidding up the price of housing. The Great Mortgaging is a great source on this: https://www.nber.org/system/files/working_papers/w20501/w20501.pdf https://www.nber.org/system/files/working_papers/w20501/w205... Just look at this scary chart: https://www.fortressofdoors.com/content/images/2021/10/2021-10-14-17_25_56-w20501.pdf---Vivaldi.png https://www.fortressofdoors.com/content/images/2021/10/2021-...
- poulsbohemian 5y ago
  Perhaps it's because I'm one of those dirty rotten real estate agents, but I'm not understanding your motivation with this set of recommendations you posit. >* allow for multifamily housing Zoning is entirely a local matter, so sure, talk to your local city / county / state if you prefer there to be more allocation for multifamily. It isn't something that the feds have any control over. >* remove the mortgage interest deduction So what's your goal here, given that historically this was the single biggest tax benefits to the (ever-declining) middle class. >* implement land taxes instead of property taxes Real estate is predicated on the concept that adding value to the land increases its value. So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax. >* have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble) Real estate is local. I'm sure there are markets that are in a bubble, but that doesn't mean that every market is experiencing that. >* get the government out of the mortgage securitization business These programs by and large benefit the non-wealthy by providing a degree of stability in the mortgage market that make it worthwhile for lenders to lend. Wealthy investors generally don't care - they are paying cash, working out seller financing arrangements, borrowing from hard money lenders, or have long-term bank relationships such that they have all the access to conventional money they need. It's the less fortunate and middle-class that get hurt when government programs are restricted.
zz865 5y ago
I think Californians know about expensive houses but most of the USA is pretty cheap. Places like Europe/Canada/Australia didn't go down in price in the 2008 crash like the US did - its been straight up for decades.
- kazen44 5y ago
  Mind you though, prior to the 1980's, most housing in (western) europe was either socially or state owned. Mainly because housing was build as a solution to the mass housing crisis after world war 2.
servytor 5y ago
Did you know that the "Life, Liberty and the pursuit of Happiness" from the Declaration of Independence is said to be inspired from John Locke, who said that "life, liberty, and estate" are the essentials a political body has to protect for each citizen[0]? [0]: https://en.wikipedia.org/wiki/Life,_Liberty_and_the_pursuit_of_Happiness#Lockean_roots_hypothesis https://en.wikipedia.org/wiki/Life,_Liberty_and_the_pursuit_...
cs702 5y ago
According to the McKinsey study mentioned in the article[a]: * Two-thirds of global paper wealth is tied up in real estate valuations (residential and commercial). * Paper wealth is now nearly 50% higher (!) than its long-run average relative to income, globally. * Paper wealth and economic growth are no longer moving in sync, as they had in the past for a long time at the global level, albeit with some country-specific deviations. Asset prices around the world, including property prices, are now in unprecedented territory; there is no doubt about that. There are many possible explanations for this deviation from long-term norms, but they come broadly from two camps. In one camp are those who are not sure why they should even worry about this, because they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration. In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income. Some of the smartest people I know are either in one camp or the other, with little overlap between camps. My perception is that there's no shared agreement as to what any of this means, or whether anything should be done about it. -- [a] https://www.mckinsey.com/industries/financial-services/our-insights/the-rise-and-rise-of-the-global-balance-sheet-how-productively-are-we-using-our-wealth https://www.mckinsey.com/industries/financial-services/our-i...
- b9a2cab5 5y ago
  Asset prices are merely a function of discounted future cash flows. As interest rates are lower, the discount on future cash flows decreases. The world is also much more stable than it was in the 1950s-1980s - look at the state of Asia now and then. That means there is a lower risk discount on future cash flows. If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.
  - cs702 5y ago
    Two-thirds of paper wealth is in real estate. For most families that have any wealth, the biggest component of that wealth is the current valuation of the home in which they live. If the valuation of real estate in relation to income globally reverts to long-term historical norms, a lot of regular people would be affected, not just the wealthy.
LatteLazy 5y ago
Yes, that was the whole reason at least in the UK and US. That's literally what was publicly stated as the reason.
paulpauper 5y ago
Correlation does not equal causation. Real estate boomed in the 80s and 90s and 2000s despite much higher interest rates.
BlueTie 5y ago
If your mortgage rate is 2.5% and inflation is 4.5%. You're getting 2% real returns. But you're also getting leverage since most buyers put 20% down or less. 4:1 leverage on 2% is 10% real returns. This is BEFORE asset appreciation. That is, if the house stays the same in value in 30 years you're still outperforming the stock market's historical average.
- mikem170 5y ago
  What happens if the values go down along the way? I guess the ups and downs are ok as long as you don't have to sell and can continue to make the payments. And taxes.
  - zionic 5y ago
    Well if the value collapses don’t your taxes?
    - mikem170 5y ago
      I'm not sure, especially if everyone's house drops in value in a locality. Services like garbage, police, fire, and schools would still would cost the same, right? So the municipality would need the same amount of money, I'd assume.
- madsbuch 5y ago
  Wouldn't that be realized in a 4.5% annual appreciation of the house? Ie. this is not before appreciation but because of appreciation.
  - mrfox321 5y ago
    Inflation makes debt less valuable, too. So if your wages or other assets track or exceed inflation, then that debt should be paid off more easily
- bullen 5y ago
  This is a common misconception that originated from the inflation in the 70s and 80s where wages increased with the inflation. Actually the inflation WAS salary inflation (caused by rising interest rate when most money was not debt) much different from todays energy inflation (and debt as money). If your salary does not increase with the inflation, you don't get the additional 4.5% in salary and then you are NOT getting 2% real returns. Combine that with all energy costs going up and you have a real problem because the governements cannot raise interest rates (without crashing everything), that leaves banks to compensate for energy (which you cannot print) which means people are going to get hurt (the interest spread, the difference between what a bank pays to the central bank and what you pay to the bank, is going to grow until things get out of hand). My prediction is that house prices cannot increase more than general inflation now since the margin of the central banks is now permanently zero (we have had official zero interest rate for some time, but not for the banks, only last year did the central banks remove the spread for banks to borrow money from or hold money at the central bank, but now they cannot increase the incentive to borrow ever again for this civilization) this means the debt collateral (it's not an asset if you have debt on it) wont be able to appreciate either! And energy inflation is VERY deflationary for housing because you need to buy heat, water and food before you pay rent/interest. One easy way to see this trainwreck in motion is to watch the state of houses that need repairs, the second you cannot borrow to repair a house the music stops. In fact, that you can borrow to do maintenance in the first place should have been enough warning. We're living through the biggest margin call possible right now (a margin call on money itself, or as you should call it "housing backed debt" because thats 99% of it) and there is nothing anyone can do about it! The end game is that there is a split between debt money and non-debt money in terms of what interest rate they have, and again the spread will increase until things get out of hand, they allready are; in some countries you pay negative rates on your savings above a certain amount and at the same time the loan rates will increase in the other direction! Spreads and margins!
kache_ 5y ago
It gets more bleak every day
anthony_barker 5y ago
No one mentioned that governments benefit it 2 ways. 1) All the unemployed autoworkers who got automated away can move to make something that has had almost no productivity gains 2) Debt payments by government are basically nill. Another view: https://americanaffairsjournal.org/2021/11/vampires-at-the-gate-finance-and-slow-growth/ https://americanaffairsjournal.org/2021/11/vampires-at-the-g...
chrischattin 5y ago
It’s not just real estate. It’s all assets. This is Finance 101. As the risk free rate goes to zero asset prices go to infinity.
- DreamWalker1 5y ago
  Exactly. Basically you observe inflation. Expectations on future Inflation is high. So people invest in everything that somehow holds value. So stocks, real estate prices are record high. Honestly has anyone a good idea how to invest a large sum of cash to just get inflation protection?
anigbrowl 5y ago
The economic theory arguments are important, but I think it's also worth noting that the internet's facilitation of preferential attachment (asymptotically) fosters bimodal distributions in everything and the effect of the spikes swamps the hoped-for benefits of long tails. Economic distributions that are massively skewed aren't sustainable, any more than organic distributions are; either you end up with chronic bad conditions (like diabetes) or abrupt discontinuities (like heart attacks and strokes, parallel to authoritarian crises or revolutions). I think moderate (2-3%) inflation might actually be a good thing in the short-medium term as long as its led by wage increases. Much of the inflation we're seeing now is result of demand shocks following the pandemic and thus economically rational.
copenja 5y ago
Check out 'Exhibit 4' in report linked from the article: https://archive.md/DRUiI https://archive.md/DRUiI. It shows that in the USA "net worth relative to nominal GDP" is actually pretty stable. The US has the lowest multiple of all the countries under analysis. Indeed the graph shows the US being almost exactly at the historical average. I'm not sure what this means, but I certainly found it surprising.
- onlyrealcuzzo 5y ago
  This is what I find interesting. No one seems to complain about house prices more than people in the US - and yet on average - housing relative to rents & wages is much more affordable in the US than almost every other country in the world.
  - kazinator 5y ago
    Could that because of of the USA's slums dragging down the average? Say that your income is at the 0.75 quantile, nationally: you're just barely in the top quarter. Now arrange the housing from least desirable to most and look at the 0.75 quantile of that: how affordable is the entry to the 25% most desirable places to live? How close are those places to where you earn your 0.75 quantile living?
    - ffggvv 5y ago
      its not about slums. the US has abundant land and houses are cheap in most of the country. It's just big (especially coastal) cities where the prices are insane. Alot of americans do in fact live in "fly over country" where prices are 300k or sometimes less. In addition, we are lucky that we have a lot of cities, not just one major one. Contrast this to a tiny country like britain or japan with only one major city london/tokyo where everyone wants to live. Where land actually is a limiting factor.
      - kazinator 5y ago
        I believe you can easily get a <= 300K detached house that is a 30-40 minute train ride from Tokyo, and in an area that itself has decent amenities.
d--b 5y ago
Well, no shit, Sherlock!! Everybody who has been renting or has been buying a home in the last 10 years knows this... All the cash that's been "pumped into the economy" has only fueled inequalities. It's gone in the pockets of those who were already wealthy enough to secure a loan. And yes, they did buy houses, and bitcoins, and stocks. Oh and then that caused the prices to go up, so whoever forgot to invest started doing it, pumping the early birds' wealth up, allowing them to borrow even more. The whole economical landscape is bubbles everywhere. And now the FED can't really reverse it. If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close. We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.
- DeathArrow 5y ago
  Actually if you borrow money to buy overpriced properties, you are not going to end rich. Low interests helped those who invested in equity or had real estate to sell.
- po1nt 5y ago
  What about just abolishing fractional banking and letting the credit balance itself. Heavy taxation always hurt low income families the most. If you are wealthy enough, you can just leave or find a way to bypass taxes. In the end Laffer curve dictates there will be less money to give to freshly unemployed low income families whose employers just moved to more friendly markets. Stop the money printing machine. It was supposed to be stopped earlier and it will hurt now more than ever. But the more credit you create, the more will assets that are usually bought on credit cost.
  - pas 5y ago
    > letting the credit balance itself what does that mean?
    - po1nt 5y ago
      That means no more landing fairy tale money and pushing interests even to a negative numbers just to keep people borrowing in hope their spending will recover the economy. We are beating a dead horse. If we could just let market decide the interests and not money printer, the economy would stop inflate itself. The only money banks could lend would be those that the bank really owns.
po1nt 5y ago
Article author just accidentaly rediscovered austrian economy.
gdsdfe 5y ago
Advanced?? Developed countries you mean?
qwertyuiop_ 5y ago
I am priced out of the market. What does the collective hivemind of HN suggest? Do I take out loans from family and friends and put up the down payment or wait for the prices to "normalize" is it going to take 2,5,10 years ?
narrator 5y ago
Being deeply in debt on fixed rate interest loans is a good way to make money during an inflationary period. The balances on the loans evaporate while wages increase relative to interest payments.
EMM_386 5y ago
This all has to do with the post-COVID crashes that many countries experienced. Their central banks literally flooded the economy with cash. Buying bonds, stocks, real estate, whatever it took to stabilize markets. This is their "role". Call it "quantitative easing" or whatever fancy term they come up with this week. What it means is devaluing the currency. In this scenario, if you hold assets (houses, stocks, etc) you gain "wealth". If you don't, you are on the short end of the stick. In the US, the Federal Reserve now has to "unwind" this, because they don't exactly want to be holding $8.5 trillion in securities. It's not what they "do". They can take this on the "books" because they have literally unlimited money and can buy anything they want. But at some point, the Fed banks don't want to be in the securities game and have to move them back off the books. Because they can move the markets so dramatically, they will likely turn a profit for the US Government. That will get them closer to the goal of low unemployment and interest rates in check. But at what cost? 2008 was the first time we tried this, and here we go again. Congratulations to everyone who was on the upside of this. Now we wait for the downside.
- myridium 5y ago
  Any ideas on how to short the economy for the inevitable repeat of the GFC?
acd 5y ago
Unconstrained central bank debt creation is making main street poorer through inflation and increased housing debt.
naveen99 5y ago
Real estate is still deflating relative to bitcoin, tesla, nvidia, and even as an asset class relative to financial wealth atleast in the usa https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2021-en.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab... As the rest of the world adds property taxes to real estate, evergrande is coming everywhere.
DeathArrow 5y ago
The article is just stating the obvious.
navi0 5y ago
Another potential solution I haven’t seen discussed much is limiting/eliminating the deductibility of interest. Assets tend to become inflated when interest rates are low or lots of financial leverage is used to acquire them. To counteract this, one solution might be to eliminate the deductibility of interest for tax purposes, which for mortgages in particular, is a regressive tax subsidy that benefits higher earners. It could be implemented gradually (e.g., reduce the deductibility by 1-2% per year until it reaches zero) to avoid immediate shocks to the system and provide investors with the ability to plan. It could also be implemented to apply only to non-primary residences if we want to keep a popular middle class tax subsidy. This would target 2nd, 3rd, etc. homes and property and assets owned by corporations.
stretchwithme 5y ago
I wish low interest rates were the only thing incentivizing people to invest in real estate. It's tax treatment, it's bailouts, it's government buying underwater real estate and selling it at a loss to the same bank they bought it. It's Fanny and Freddy, ready to take those high risk mortgages off your hands> And as real estates absorbs all the investment capital, a lot of buildings are built that sit partially or even fully empty, just appreciating. But not really producing anything. Sometimes, even the shelter a house was designed to provide is not used. People literally buy larger houses for the tax advantages, not because having the space is worth the investment. Meanwhile, other investments actually produce good and services people are willing to buy and often turn a profit. These kinds of investments are the real source of wealth. A house is something that can only be built using existing wealth, whether yours or borrowed. All of this is done because someone convinced policy makers that consumption is somehow what causes prosperity. This is incorrect. It's actually PRODUCTION that creates prosperity. To consume something, someone has to produce it first. Everybody may want a car but until Henry Ford figures out how to produce it cheaply enough, they won't get one. And that's over investment in real estate is a problem: it takes capital away from innovation. It DELAYS innovations. And those delays cost trillions, depending on what time period you're looking at. Certainly delaying the invention of the assembly line by a century would have cost trillions.
- pas 5y ago
  There's no shortage of capital, there is a shortage of risk taking. It's a coordination problem. The mechanisms that regularly work on this (politics, markets) are not as effective as they could be, because of interdependencies, blockages, ideologies, etc.
brippalcharrid 5y ago
This is a symptom of the "gradual disappearance of a rate of return on accumulated wealth" that Keynes daydreamed about in 1936, and we're going to witness more and more of the social changes that result from it. > “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” > “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” J. M. Keynes - "The Economic Consequences of the Peace" Further analysis: https://monetary-metals.com/keynes-was-a-vicious-bastard-report-17-mar/ https://monetary-metals.com/keynes-was-a-vicious-bastard-rep...
rambojazz 5y ago
My bank offers less-than-inflation rates. That's ridiculous.
juanani 5y ago
Apparently, economists on HN are heavily invested in protecting their bigbro banks and furthering class warfare. Their paychecks rely on this, sadly not surprised. I nominate this thread for future mental olympics studies.
un-devmox 5y ago
Off topic but I noticed while reading the archive.md article I highlighted some text by accident and noticed that the URL was updated to point to that text, https://archive.md/REmb8#selection-2437.0-2437.5 https://archive.md/REmb8#selection-2437.0-2437.5. I've never seen this before. I know Chrome has 'Copy Link to Highlight' but this appears to be different and cross browser compatible. Does someone have any info on how this works? I'm assuming that URL is updated via JavaScript. What about when browsing to the URL? I think this is handy and something I'd like to incorporate into a blog site I'm building.
- raxi 5y ago
  http://trilema.com/2015/that-spiffy-selection-thing/ http://trilema.com/2015/that-spiffy-selection-thing/
bacan 5y ago
We figured all this out nearly 8 months ago on Reddit - r/superstonk. Low interest rates will start to go away starting Jan 1 2022 and eliminated by Jun 2023

362 points by 609venezia 5y ago

https://archive.md/REmb8 https://archive.md/REmb8

This headline doesn’t seem all that surprising (nor does the article drop any particularly deeper revelations). As soon as “indoors” was invented, humans preferred to live that way, even though it was expensive as compared to outdoors. I don’t see a reason to think that would change and, especially with people spending more time in their home and less money on services and experiences, would expect that more money would flow into improving the at-home experience, bidding up housing.

deepnotderp 5y ago

IMO this is the single biggest malaise in society. “Investing” (speculating) in real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter, a basic necessity. It also directs capital away from investing in technology and businesses. Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. Adam Smith even called landlord’s right “theft”.

skybrian 5y ago
Yes, there are often undeserved windfalls. But I think you're missing something? Buildings don't come out of nowhere and they don't maintain themselves. Abandoned buildings deteriorate. They need to be protected. (Sometimes, unfortunately, from the tenants.) There is a social role to be played here, whether homeowners do it themselves or landlords do it.
dmingod666 5y ago
Not just this, the behaviours that the investment protection brings like activism against denser housing in their vicinity is just plain cruel.
api 5y ago
https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism TL;DR: things that people produce such as labor, products, and services are not taxed at all. No payroll taxes, no sales tax, no income tax, and no capital gains tax on investments in productive activity or human-made capital. Things that people did not produce such as land or the right to extract natural resources are taxed. For land the land value is taxed, but this does not include the value of things built on the land. You're basically billed for the right to "own" things that existed before any of us were born. Since not much else is taxed, these taxes could be rather steep. This strongly incentivizes efficient use of land and natural resources and discourages non-productive squatting on them. You would not see, for example, a bunch of self-storage places and gigantic sprawling car washes in Silicon Valley. The land value taxes in such an area would be far too high to justify anything but highly efficient productive uses of the land such as housing, manufacturing, offices, etc. Vertical construction would be highly incentivized in high value areas.
- deepnotderp 5y ago
  Yeah I’m personally a fan of Georgism but realistically something like a LVT is too radical to implement. I think that a carefully thought out property tax code (eg higher taxes for lower density buildings) can get you 80% of the way to the effects of a LVT while being pragmatic enough to implement today.
  - larsiusprime 5y ago
    You could actually do a lot to adapt existing property tax regimes into something like a very close approximation of an LVT. Step 1 would just be improving the quality of assessments to take advantage of the state of the art of the latest mass appraisal methods (which requires no change in law, just requires you to influence the training and/or appointment/election of local assessors) from the last 15 years. Step 2 would be lowering the tax rate on improvements and shifting the burden off of buildings and onto land; this is barred in certain states but is perfectly legal in others.
    - sokoloff 5y ago
HPsquared 5y ago
Houses are not zero-sum, as it's possible to build more. Even for land, the value is all about how developed it is, which is not zero-sum: one can always develop more land. In England for example, known as a densely-packed country, only about 2% of land is actually built on, and of that 2% only a tiny fraction is actually dense.
- francisofascii 5y ago
  The value is very much about the location of the land. The neighborhood, school district, proximity to parks or transit. The actual structure matters less and less these days. It is "possible" to build more, but rarely politically viable.
  - HPsquared 5y ago
    Schools, parks and transit are not static and new ones can be built. Those all fall under "development".
    - herlitzj 5y ago
      You say this as if it's fast or easy. All of these can easily take 10s of years build from conception to completion due to a myriad of reasons. Land acquisition, federal state and local funding, environmental review, court cases, zoning changes, public review proceses, etc. It's not like someone decrees that a school should be built and 6 months later it's up and running. And the school is the easy one on that list :)
- tlholaday 5y ago
  > Houses are not zero-sum, as it's possible to build more. Every newly-built house lowers the value of every already-built house. It is straightforward to specify initial conditions where the result is negative-sum.
  - ushtaritk421 5y ago
    It lowers the "value" as a monopolistic asset class but not the "housing/day units" value. The second value is what society should care about increasing, and it should go out of it's way to destroy the first kind of "value".
hyuuu 5y ago
how would you direct private capital to maintain/build living spaces then? Unless you are thinking to have government to be responsible to do that, building more to keep up with the demand + maintenance of the existing ones. It does work in places like Singapore, but I am not sure I would trust the US Gov's execution.
- deepnotderp 5y ago
  By separating the productive activities of construction and administration from the parasitic activity of rent seeking.
  - golemiprague 5y ago
    Some people want to rent and some other people supply it, there is nothing parasitic about it, it is like any other trade.
  - kansface 5y ago
    Rent seeking isn’t parasitic. It provides liquidity to the housing market where it wouldn’t otherwise exist. You want to move to a different city, renting doesn’t exist, then what? How does that work for anyone who can’t make a downpayment, or anyone who is in a hurry, or at all really? Nationalized housing in the US tends is even more dystopian than the private sector. If you want a vibrant, sane, and fair rental market, we’d need an actual free and fair market in the first place.
    - clairity 5y ago
      rent-seeking is the economic concept of income being captured from simply owning an asset rather than from productivity. its literally anti-capitalistic, as it's always a market distortion that creates the coercive force necessary to inefficiently funnel income this way. fair markets would compete away rent-seeking in short order. that's different from providing rental housing, whereby owners earn rent by constantly working to provide safe and desirable housing. capitalism is premised on the idea of using markets to drive down prices to the marginal cost of production plus a small industry-/market-specific risk premium. rent-seeking is entirely counter to that.
VictorPath 5y ago
> Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. From World War II to the early 1970s, the utilization of existing US capital equipment rarely dipped during the worst of a deep recession, to what have been the highest levels of capital capacity utilization rate since the 2008 financial crisis. The old lows have been about what the new highs have been. This indicates an overabundance of capital investment and overproduction, which was the opinion of former GE CEO Jack Welch. https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren...
ok123456 5y ago
mao was right
- AnimalMuppet 5y ago
  That particular cure is far worse than the disease.
jonplackett 5y ago
The weird thing about house prices is it’s the exact same house that now costs waaaay more. What I mean is, for example, my house is 130 years old. So it’s in a _worse_ state than it was 20 years ago. But it costs probably 10 X more. It’s not like houses are a fine wine that matures. Nor is it in any way upgraded or better like a new technology would be. But up in cost they go, indefinitely. Exponentially. Pointlessly. A complete and utter failure of policy.
- tibiahurried 5y ago
  What's 10x is not the house, but the land, the physical space the house seats on. The land is a finite resource, thus it can only appreciate in value.
  - baq 5y ago
    Only if population grows. Land will depreciate if there are less people to live on it.
    - snidane 5y ago
      In the 21st century, even if country population stagnates or even drops, population still grows in cities compared to rural areas.
  - liketochill 5y ago
    Not just land, but land in desirable places with amenities like roads, sewer, water, power, schools, food stores near by.
  - Spooky23 5y ago
    Only if the capital is available. Speculators tend to use borrowed money to do their thing and drive prices up. Good times until they’re not, then boom. I have family who made a fortune off the backs of people living under this delusion in the 1980s and the 1960s.
  - batshit_beaver 5y ago
markus_zhang 5y ago
Capital flows to where it can grow. I don't see this against the principle of capitalism. IMHO capitalism has one and only one rule: grow your capital as fast as you can. That said, if the return rate of investing in real estate is lower than the rate in technology, then naturally more money will pour into technology.
deleted 5y ago
[deleted]
wyager 5y ago
Storing wealth doesn't redirect capital away from businesses. It represents the possessor deciding to temporarily step away from the continuous auction process to allocate productive capacity ("the market") which increases the purchasing power of those who remain, to either invest in capital goods or consumable goods. Buying monetized assets (real estate, gold, bitcoin) is not economically harmful - in fact, it's better than reflexively buying index funds, which is basically the other option.
antupis 5y ago
There is simple solution for this https://en.m.wikipedia.org/wiki/Georgism https://en.m.wikipedia.org/wiki/Georgism but some reason georgism is still pretty marginal thing.
- bumby 5y ago
  That requires a somewhat radical shift in the societal perceptions of property rights. When the U.S. Constitution specifically mentions intellectual property rights, I don't think it could ever be construed as a "simple solution" to change that definition.
  - tryptophan 5y ago
    And as much as I love georgeism in theory, it is in practice very difficult to calculate an accurate land value separate from what is built on that land.
i_have_an_idea 5y ago
Well, maybe, but think of the flip side of this. I've worked very hard to earn X amount of dollars, however the monetary policies of banks around the world have pushed inflation up, essentially eating up my savings, all the while pushing the interest rate on deposits to zero and below. I would like to not lose the purchasing power that I've earned, so my only choice is to invest in something. I also want to invest in something as low risk as possible; if my hand wasn't forced, I'd be happy to keep my money at the bank at 2%. Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets. And, as a small-time investor, I don't have access to private deals or markets. So, that leaves real estate. I don't put my money there because I want to drive up the cost of shelter for anyone, I do it because I don't have any other reasonable way to protect my savings.
- toomuchtodo 5y ago
  You’re trying to store purchasing power as structural macro economic and demographic changes occur. This is challenging, at best. Look to Japan for what the future holds.
  - saiya-jin 5y ago
    Not every country is, or ever will be, like Japan. I would say most of them won't during our lives. I agree with OP, if you just leave hard earned money of us middle class sit in the bank, it will be eaten away by inflation and fees. Its what our parents did, and its properly dumb. Risk with markets which most don't understand, or invest into real estate which everybody does at least a bit. Most folks consider only these 2 options. Also, if SHTF, in most cases you will have physical places or even land to live off, instead of few bank statements. People will still have to live somewhere, and there is constantly more of us.
    - toomuchtodo 5y ago
      All countries eventually end up as Japan. India and Africa will race to be last. China is already somewhere between 1.1 and 1.3 total fertility rate. Sustained sub replacement rates (<2.1 fertility rate) locks in population momentum. This is important because age of labor and consumers directly influences macro economic conditions, which trickles down to investment returns. https://ourworldindata.org/uploads/2014/02/World-population-by-level-of-fertility-without-projections-768x538.png https://ourworldindata.org/uploads/2014/02/World-population-...
snidane 5y ago
This is not an innate trait of capitalism. This is due to tax favorability of land speculation compared to other options. Add zero interest rates to it and accelerate flows of all the extra money to into further land speculation. I can easily imagine a society, capitalistic or not, that doesn't subsidise land speculation, which doesn't suffer from real estate bubbles.
p0larbear 5y ago
" It also directs capital away from investing in technology and businesses." Empirically this does not seem like a problem in the US at the moment. Large US banks are starved for lending opportunities, and turning away deposits for lack of balance sheet. The Federal Reserve bought corporate bonds. Lending conditions are loose (see links) https://fred.stlouisfed.org/series/DRTSCILM https://fred.stlouisfed.org/series/DRTSCILM https://fred.stlouisfed.org/series/DRSDCIS https://fred.stlouisfed.org/series/DRSDCIS https://fred.stlouisfed.org/series/NFCICREDIT https://fred.stlouisfed.org/series/NFCICREDIT https://fred.stlouisfed.org/series/NFCI https://fred.stlouisfed.org/series/NFCI
jspaetzel 5y ago
The ability to transfer property quickly thanks to investors does provide some value. However, sitting on property and collecting rent is essentially theft. To fix this we need more incentives that reward the use of property more then the ownership of it.
- sokoloff 5y ago
  Property being rented is being used.
- carom 5y ago
  I have a 4 unit apartment building. I live in one unit and make the others available for people to rent out. My alternative, which I am strongly considering due to what a pain in the ass this is, is to convert it to a single family home. Would you prefer me to take these units off the market? I can afford the mortgage by myself. I won't have to deal with the city over problems $600 / month rent control tenants create when they were mad at the last owners. I won't have to pay $6k going on $20k to evict a tenant who requests a jury trial, not to mention house them for free for 6 months. My city already has a housing shortage and I am strongly considering just having an awesome SFH instead of this. Every incentive seems to be against the use of this property. Rent control causes individual landlords to subsidize the poor societal zoning policies. Legacy rent control tenants also distort the market, raising the price of other units at market rate. It also lowers the income that would be put toward building more units. This property is zoned for 15 units and I would love to build those. Any extra income would be going toward that (as is my personal income). Instead the incentives are for this property to limp along so no one has to move ever.
chrischattin 5y ago
This is 100% correct and caused by artificially keeping interest rates low. If the price of money was allowed to find it’s natural equilibrium, these distortions wouldn’t be present. It’s anti-capitalist, market intervention by the fed that’s causing inflated asset prices everywhere. Unfortunately, it ends up most hurting the most venerable in society.
bawolff 5y ago
Investing can also include making new buildings and structures (e.g. new apt building) which increases amount of shelter available.
BenoitEssiambre 5y ago
This is very wrong. Investing in real estate is a real investment when it results in houses being built. In fact it is maybe one of the most timeless and obvious form of investment. People have built and traded dwellings through the ages. Prices have to rise when good land gets scarce and labor gets more expensive. Low interest rates _also_ boost investment in technology and businesses. Raising rates, if you mean central bank rates, would reduce investment in both houses and technology. Raising interest rates is a signal and incentive from central banks to not invest in anything and instead hold on to government paper. Raising rates means funding the wealthy's savings by providing them a backstop. When they can't find assets that retain sufficient value on the private markets, they can just hold to government paper having above market returns. I wrote more here a while back: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a?source=friends_link&sk=cb180b2cf186b263b6c6c70ad29bc36e https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...
- deepnotderp 5y ago
  When people say “investing” in real estate they generally mean buying existing houses, not investing in construction projects. And “throughout the ages” is nonsensical, slavery is as old as civilization and yet abolishing it led to wealthier and happier societies. Imagine if instead of real estate speculation that capital went into creating new technologies and businesses.
  - BenoitEssiambre 5y ago
    The bidding up of existing ones is a side effect that happens however central banks are more about controlling investment in new ones than the price of existing ones. Higher prices of houses means there is more incentive for them to be built (or repaired) and for the builders to be paid well. Central banks stimulation is meant to make sure this happens to a sufficient degree, just not so much that builders (and workers more generally) are paid too well that it would drive inflation too high.
- throwaway2048 5y ago
  Its not resulting in housing being built, its resulting in existing stock getting bought and flipped.
sien 5y ago
At least 1/3 of people rent in most developed economics. Investing in real estate creates dwellings for them to rent. Food, clothing and shelter are basic needs. Providing one of them is most certainly creating value. Real estate is not zero sum. Having shops, schools, offices, factories and whatnot around your real estate makes it more valuable, not less. There is a problem now around the world in many cities where a great deal of value is created in that government has made it too hard to build new dwellings and the price of dwellings has been rising. However, there are also cities around the world that have had a lot of growth while having reasonably priced houses. In 2000, Houston had a population of 3.8M in 2020 it was 6.3 M. From https://www.macrotrends.net/cities/23014/houston/population https://www.macrotrends.net/cities/23014/houston/population They have also managed this with affordable housing. That's something to learn from.
- joshlemer 5y ago
  In an ideal world you're right, but in this world where the reality is extreme supply suppression by nimby house owners, real estate is almost zero sum.
- siquick 5y ago
  You can build houses all day long but that doesn't automatically make them places anyone can thrive in. Sydney (some of the highest house prices in the world) has a few new estates built outside the city but they suffer from no schools, no shops (except a strip mall equivalent), no parks, no tree cover, and general shoddy building work. https://www.theguardian.com/australia-news/2021/nov/16/ultimately-uninhabitable-western-sydneys-legacy-of-planning-failure https://www.theguardian.com/australia-news/2021/nov/16/ultim...
- deepnotderp 5y ago
  Texas also has high property taxes and Houston has very lax zoning regulations, both things designed to prevent real estate speculation.
max47 5y ago
>n real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter And yet there is literally millions of people begging for a opportunity to get a unit in large/rich cities. If there was no value to it, why does everyone cares so much about living there? If you truly believe what you say, than you better never ever complain about home prices. Paying 100$/ft² for a massive modern house in a shithole place is an option that is always there for you if you think location doesn't matter. But let me guess... you want to live in [insert big city near your location] but people richer than you also want to and they priced you out
globular-toast 5y ago
Does speculating in anything create any value to society?

mercy_dude 5y ago

> Now, wealth and growth are completely disconnected. This is, of course, behind much of the populist anger in politics today. Affordable housing in particular has become a rallying cry for millennials who can’t afford to buy homes and start families as early as a previous generation did. I am one of those millennials that is forever priced out of the housing market. And that to a large extent has shifted my political belief away from hard left that I once used to be. Especially seeing how the local mostly leftist politicians in SF have basically helped fuel the crisis even further and basically have done nothing. And many neoliberal leftist economist and media outlets even defending the status quo monetary policy that is clearly behind this wealth divide. To my disappointment though as much of a victim clearly as millennials and GenZ are, their political beliefs don’t acknowledge they want a change. It’s as if they expect the same group of people that are largely behind some of the bad policies causing the wealth disconnect are suddenly going to reverse course. A case in point is SF where they keep voting the same old eggheads who have virtually made it possible for the boomers to retire extremely wealthy at the expense of prices out millennials like me. If you vote for the same people expecting some sort of change will happen then spoiler alert. It won’t.

hyuuu 5y ago
you are priced out of specific locations, not the whole housing market and those people who are pricing you out of those locations, they themselves are also priced out from other certain high priced locations.
- deleted 5y ago
  [deleted]
- mercy_dude 5y ago
  This the classic “pack your bag and move” type of argument much like “learn to code”. For many this is not an option due to job, family and a host of other things. The point in the article I was highlighting was about prices outpacing growth. And that’s a problem. When you have prices doubling almost every 5-10yrs and no chances of slowing down then why even work?

323 5y ago

US has plenty of space. And unlike Europe, you can easily find a large "mostly empty" patch of land. But for some reason new cities are not built anymore. And when someone proposes building a new city inevitably the press fills up with dystopia/rent-seeking/we-should-make-existing-housing-cheaper/... articles.

alexashka 5y ago
It's not that surprising. It's not 'profitable' and it requires actual competence. It's the same reason you have meetings where nobody will commit to anything, hoping that some other fool will commit to take on extra responsibility for no extra pay. Politics is exactly like that.
sgt 5y ago
How about we build a perfect grid of cities across the US - perfectly spaced 50 miles apart. Mountain in the way? We'll use explosives. /s
ericmay 5y ago
Is “building a new city” meaningfully different from just expanding or growing the current city or introducing medium density? I’m supportive of new cities as experimentation projects - think that’s great actually. If it’s take a sprawling suburb and build another one it’s like why would you bother doing that versus just doing the same thing you’re doing now in current cities?
- 323 5y ago
  I agree with you, expanding cities should be preferred. But that doesn't happen either, maybe because existing cities are surrounded by private lands, or other stuff that is hard to displace, in a litigious place like US.
  - Scarblac 5y ago
    Or don't expand them, make them denser. Hopefully means less travel needed as well.

pjdemers 5y ago

Twenty years from now, when 10,000 baby boomers are dying every day, housing prices will be in free fall, with no end in sight. That's too late for most of us, but today's small children will have no problem buying a house as adults, if they even want one.

thisisnico 5y ago
Immigration will make up for the difference.
- twiddling 5y ago
  https://www.1billionamericans.com/ https://www.1billionamericans.com/
- cblconfederate 5y ago
  Assuming that people will still want to emigrate to the west
GoOnThenDoTell 5y ago
They’ll just increase the immigration rate to make up for it
inherently_juxt 5y ago
Nah, large companies will continue to buy up all the dying boomers' homes like they do today. The companies will then jack up the rent on all property in the area. Small kids today will never know ownership unless its through their daddy's company.
whytaka 5y ago
Or we might have a commensurate number of immigrants/refugees fleeing the effects of climate change caused by western consumption.
poulsbohemian 5y ago
I work in real estate so I'm alway interested in people's hypotheses... knowing that the Millennial and Z generations are both bigger than the Baby Boomers, I'm curious why your hypothesis is that housing prices will be in a free fall rather than continue to be a case of less (desirable) supply relative to demand.

cblconfederate 5y ago

I think it's a generational thing. Old generation wants to sell its wealth at the highest possible prices. Newer generations are not biting completely (and have no problem living in small spaces), hence crypto.

Terry_Roll 5y ago

Is this not demonstrating Maslow's Hierarchy of Needs?

MrPowers 5y ago

This quote seems disconnected from recent observations: > the big government spending programmes of the post-Covid era present a new opportunity to try and push money into more productive sectors, which could ultimately bring wealth and growth back into alignment We've seem some huge big government spending programs recently (monetary expansion and fiscal stimulus) and it's pretty clear the money has flowed into speculative asset classes, equities, and real estate. The conclusion is a non sequitir. Government spending programs have arguably caused the real estate bubble, not sure why more of them would have a different impact. Here are some government programs that would probably help lowering housing prices: * allow for multifamily housing * remove the mortgage interest deduction * implement land taxes instead of property taxes * have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble) * get the government out of the mortgage securitization business

larsiusprime 5y ago
Fun fact -- the majority of bank loans are also for real estate, further bidding up the price of housing. The Great Mortgaging is a great source on this: https://www.nber.org/system/files/working_papers/w20501/w20501.pdf https://www.nber.org/system/files/working_papers/w20501/w205... Just look at this scary chart: https://www.fortressofdoors.com/content/images/2021/10/2021-10-14-17_25_56-w20501.pdf---Vivaldi.png https://www.fortressofdoors.com/content/images/2021/10/2021-...
poulsbohemian 5y ago
Perhaps it's because I'm one of those dirty rotten real estate agents, but I'm not understanding your motivation with this set of recommendations you posit. >* allow for multifamily housing Zoning is entirely a local matter, so sure, talk to your local city / county / state if you prefer there to be more allocation for multifamily. It isn't something that the feds have any control over. >* remove the mortgage interest deduction So what's your goal here, given that historically this was the single biggest tax benefits to the (ever-declining) middle class. >* implement land taxes instead of property taxes Real estate is predicated on the concept that adding value to the land increases its value. So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax. >* have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble) Real estate is local. I'm sure there are markets that are in a bubble, but that doesn't mean that every market is experiencing that. >* get the government out of the mortgage securitization business These programs by and large benefit the non-wealthy by providing a degree of stability in the mortgage market that make it worthwhile for lenders to lend. Wealthy investors generally don't care - they are paying cash, working out seller financing arrangements, borrowing from hard money lenders, or have long-term bank relationships such that they have all the access to conventional money they need. It's the less fortunate and middle-class that get hurt when government programs are restricted.

zz865 5y ago

I think Californians know about expensive houses but most of the USA is pretty cheap. Places like Europe/Canada/Australia didn't go down in price in the 2008 crash like the US did - its been straight up for decades.

kazen44 5y ago
Mind you though, prior to the 1980's, most housing in (western) europe was either socially or state owned. Mainly because housing was build as a solution to the mass housing crisis after world war 2.

servytor 5y ago

Did you know that the "Life, Liberty and the pursuit of Happiness" from the Declaration of Independence is said to be inspired from John Locke, who said that "life, liberty, and estate" are the essentials a political body has to protect for each citizen[0]? [0]: https://en.wikipedia.org/wiki/Life,_Liberty_and_the_pursuit_of_Happiness#Lockean_roots_hypothesis https://en.wikipedia.org/wiki/Life,_Liberty_and_the_pursuit_...

cs702 5y ago

According to the McKinsey study mentioned in the article[a]: * Two-thirds of global paper wealth is tied up in real estate valuations (residential and commercial). * Paper wealth is now nearly 50% higher (!) than its long-run average relative to income, globally. * Paper wealth and economic growth are no longer moving in sync, as they had in the past for a long time at the global level, albeit with some country-specific deviations. Asset prices around the world, including property prices, are now in unprecedented territory; there is no doubt about that. There are many possible explanations for this deviation from long-term norms, but they come broadly from two camps. In one camp are those who are not sure why they should even worry about this, because they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration. In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income. Some of the smartest people I know are either in one camp or the other, with little overlap between camps. My perception is that there's no shared agreement as to what any of this means, or whether anything should be done about it. -- [a] https://www.mckinsey.com/industries/financial-services/our-insights/the-rise-and-rise-of-the-global-balance-sheet-how-productively-are-we-using-our-wealth https://www.mckinsey.com/industries/financial-services/our-i...

b9a2cab5 5y ago
Asset prices are merely a function of discounted future cash flows. As interest rates are lower, the discount on future cash flows decreases. The world is also much more stable than it was in the 1950s-1980s - look at the state of Asia now and then. That means there is a lower risk discount on future cash flows. If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.
- cs702 5y ago
  Two-thirds of paper wealth is in real estate. For most families that have any wealth, the biggest component of that wealth is the current valuation of the home in which they live. If the valuation of real estate in relation to income globally reverts to long-term historical norms, a lot of regular people would be affected, not just the wealthy.

LatteLazy 5y ago

Yes, that was the whole reason at least in the UK and US. That's literally what was publicly stated as the reason.

paulpauper 5y ago

Correlation does not equal causation. Real estate boomed in the 80s and 90s and 2000s despite much higher interest rates.

BlueTie 5y ago

If your mortgage rate is 2.5% and inflation is 4.5%. You're getting 2% real returns. But you're also getting leverage since most buyers put 20% down or less. 4:1 leverage on 2% is 10% real returns. This is BEFORE asset appreciation. That is, if the house stays the same in value in 30 years you're still outperforming the stock market's historical average.

mikem170 5y ago
What happens if the values go down along the way? I guess the ups and downs are ok as long as you don't have to sell and can continue to make the payments. And taxes.
- zionic 5y ago
  Well if the value collapses don’t your taxes?
  - mikem170 5y ago
    I'm not sure, especially if everyone's house drops in value in a locality. Services like garbage, police, fire, and schools would still would cost the same, right? So the municipality would need the same amount of money, I'd assume.
madsbuch 5y ago
Wouldn't that be realized in a 4.5% annual appreciation of the house? Ie. this is not before appreciation but because of appreciation.
- mrfox321 5y ago
  Inflation makes debt less valuable, too. So if your wages or other assets track or exceed inflation, then that debt should be paid off more easily
bullen 5y ago
This is a common misconception that originated from the inflation in the 70s and 80s where wages increased with the inflation. Actually the inflation WAS salary inflation (caused by rising interest rate when most money was not debt) much different from todays energy inflation (and debt as money). If your salary does not increase with the inflation, you don't get the additional 4.5% in salary and then you are NOT getting 2% real returns. Combine that with all energy costs going up and you have a real problem because the governements cannot raise interest rates (without crashing everything), that leaves banks to compensate for energy (which you cannot print) which means people are going to get hurt (the interest spread, the difference between what a bank pays to the central bank and what you pay to the bank, is going to grow until things get out of hand). My prediction is that house prices cannot increase more than general inflation now since the margin of the central banks is now permanently zero (we have had official zero interest rate for some time, but not for the banks, only last year did the central banks remove the spread for banks to borrow money from or hold money at the central bank, but now they cannot increase the incentive to borrow ever again for this civilization) this means the debt collateral (it's not an asset if you have debt on it) wont be able to appreciate either! And energy inflation is VERY deflationary for housing because you need to buy heat, water and food before you pay rent/interest. One easy way to see this trainwreck in motion is to watch the state of houses that need repairs, the second you cannot borrow to repair a house the music stops. In fact, that you can borrow to do maintenance in the first place should have been enough warning. We're living through the biggest margin call possible right now (a margin call on money itself, or as you should call it "housing backed debt" because thats 99% of it) and there is nothing anyone can do about it! The end game is that there is a split between debt money and non-debt money in terms of what interest rate they have, and again the spread will increase until things get out of hand, they allready are; in some countries you pay negative rates on your savings above a certain amount and at the same time the loan rates will increase in the other direction! Spreads and margins!

kache_ 5y ago

It gets more bleak every day

anthony_barker 5y ago

No one mentioned that governments benefit it 2 ways. 1) All the unemployed autoworkers who got automated away can move to make something that has had almost no productivity gains 2) Debt payments by government are basically nill. Another view: https://americanaffairsjournal.org/2021/11/vampires-at-the-gate-finance-and-slow-growth/ https://americanaffairsjournal.org/2021/11/vampires-at-the-g...

chrischattin 5y ago

It’s not just real estate. It’s all assets. This is Finance 101. As the risk free rate goes to zero asset prices go to infinity.

DreamWalker1 5y ago
Exactly. Basically you observe inflation. Expectations on future Inflation is high. So people invest in everything that somehow holds value. So stocks, real estate prices are record high. Honestly has anyone a good idea how to invest a large sum of cash to just get inflation protection?

anigbrowl 5y ago

The economic theory arguments are important, but I think it's also worth noting that the internet's facilitation of preferential attachment (asymptotically) fosters bimodal distributions in everything and the effect of the spikes swamps the hoped-for benefits of long tails. Economic distributions that are massively skewed aren't sustainable, any more than organic distributions are; either you end up with chronic bad conditions (like diabetes) or abrupt discontinuities (like heart attacks and strokes, parallel to authoritarian crises or revolutions). I think moderate (2-3%) inflation might actually be a good thing in the short-medium term as long as its led by wage increases. Much of the inflation we're seeing now is result of demand shocks following the pandemic and thus economically rational.

copenja 5y ago

Check out 'Exhibit 4' in report linked from the article: https://archive.md/DRUiI https://archive.md/DRUiI. It shows that in the USA "net worth relative to nominal GDP" is actually pretty stable. The US has the lowest multiple of all the countries under analysis. Indeed the graph shows the US being almost exactly at the historical average. I'm not sure what this means, but I certainly found it surprising.

onlyrealcuzzo 5y ago
This is what I find interesting. No one seems to complain about house prices more than people in the US - and yet on average - housing relative to rents & wages is much more affordable in the US than almost every other country in the world.
- kazinator 5y ago
  Could that because of of the USA's slums dragging down the average? Say that your income is at the 0.75 quantile, nationally: you're just barely in the top quarter. Now arrange the housing from least desirable to most and look at the 0.75 quantile of that: how affordable is the entry to the 25% most desirable places to live? How close are those places to where you earn your 0.75 quantile living?
  - ffggvv 5y ago
    its not about slums. the US has abundant land and houses are cheap in most of the country. It's just big (especially coastal) cities where the prices are insane. Alot of americans do in fact live in "fly over country" where prices are 300k or sometimes less. In addition, we are lucky that we have a lot of cities, not just one major one. Contrast this to a tiny country like britain or japan with only one major city london/tokyo where everyone wants to live. Where land actually is a limiting factor.
    - kazinator 5y ago
      I believe you can easily get a <= 300K detached house that is a 30-40 minute train ride from Tokyo, and in an area that itself has decent amenities.

d--b 5y ago

Well, no shit, Sherlock!! Everybody who has been renting or has been buying a home in the last 10 years knows this... All the cash that's been "pumped into the economy" has only fueled inequalities. It's gone in the pockets of those who were already wealthy enough to secure a loan. And yes, they did buy houses, and bitcoins, and stocks. Oh and then that caused the prices to go up, so whoever forgot to invest started doing it, pumping the early birds' wealth up, allowing them to borrow even more. The whole economical landscape is bubbles everywhere. And now the FED can't really reverse it. If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close. We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.

DeathArrow 5y ago
Actually if you borrow money to buy overpriced properties, you are not going to end rich. Low interests helped those who invested in equity or had real estate to sell.
po1nt 5y ago
What about just abolishing fractional banking and letting the credit balance itself. Heavy taxation always hurt low income families the most. If you are wealthy enough, you can just leave or find a way to bypass taxes. In the end Laffer curve dictates there will be less money to give to freshly unemployed low income families whose employers just moved to more friendly markets. Stop the money printing machine. It was supposed to be stopped earlier and it will hurt now more than ever. But the more credit you create, the more will assets that are usually bought on credit cost.
- pas 5y ago
  > letting the credit balance itself what does that mean?
  - po1nt 5y ago
    That means no more landing fairy tale money and pushing interests even to a negative numbers just to keep people borrowing in hope their spending will recover the economy. We are beating a dead horse. If we could just let market decide the interests and not money printer, the economy would stop inflate itself. The only money banks could lend would be those that the bank really owns.

po1nt 5y ago

Article author just accidentaly rediscovered austrian economy.

gdsdfe 5y ago

Advanced?? Developed countries you mean?

qwertyuiop_ 5y ago

I am priced out of the market. What does the collective hivemind of HN suggest? Do I take out loans from family and friends and put up the down payment or wait for the prices to "normalize" is it going to take 2,5,10 years ?

narrator 5y ago

Being deeply in debt on fixed rate interest loans is a good way to make money during an inflationary period. The balances on the loans evaporate while wages increase relative to interest payments.

EMM_386 5y ago

This all has to do with the post-COVID crashes that many countries experienced. Their central banks literally flooded the economy with cash. Buying bonds, stocks, real estate, whatever it took to stabilize markets. This is their "role". Call it "quantitative easing" or whatever fancy term they come up with this week. What it means is devaluing the currency. In this scenario, if you hold assets (houses, stocks, etc) you gain "wealth". If you don't, you are on the short end of the stick. In the US, the Federal Reserve now has to "unwind" this, because they don't exactly want to be holding $8.5 trillion in securities. It's not what they "do". They can take this on the "books" because they have literally unlimited money and can buy anything they want. But at some point, the Fed banks don't want to be in the securities game and have to move them back off the books. Because they can move the markets so dramatically, they will likely turn a profit for the US Government. That will get them closer to the goal of low unemployment and interest rates in check. But at what cost? 2008 was the first time we tried this, and here we go again. Congratulations to everyone who was on the upside of this. Now we wait for the downside.

myridium 5y ago
Any ideas on how to short the economy for the inevitable repeat of the GFC?

acd 5y ago

Unconstrained central bank debt creation is making main street poorer through inflation and increased housing debt.

naveen99 5y ago

Real estate is still deflating relative to bitcoin, tesla, nvidia, and even as an asset class relative to financial wealth atleast in the usa https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2021-en.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab... As the rest of the world adds property taxes to real estate, evergrande is coming everywhere.

DeathArrow 5y ago

The article is just stating the obvious.

navi0 5y ago

Another potential solution I haven’t seen discussed much is limiting/eliminating the deductibility of interest. Assets tend to become inflated when interest rates are low or lots of financial leverage is used to acquire them. To counteract this, one solution might be to eliminate the deductibility of interest for tax purposes, which for mortgages in particular, is a regressive tax subsidy that benefits higher earners. It could be implemented gradually (e.g., reduce the deductibility by 1-2% per year until it reaches zero) to avoid immediate shocks to the system and provide investors with the ability to plan. It could also be implemented to apply only to non-primary residences if we want to keep a popular middle class tax subsidy. This would target 2nd, 3rd, etc. homes and property and assets owned by corporations.

stretchwithme 5y ago

I wish low interest rates were the only thing incentivizing people to invest in real estate. It's tax treatment, it's bailouts, it's government buying underwater real estate and selling it at a loss to the same bank they bought it. It's Fanny and Freddy, ready to take those high risk mortgages off your hands> And as real estates absorbs all the investment capital, a lot of buildings are built that sit partially or even fully empty, just appreciating. But not really producing anything. Sometimes, even the shelter a house was designed to provide is not used. People literally buy larger houses for the tax advantages, not because having the space is worth the investment. Meanwhile, other investments actually produce good and services people are willing to buy and often turn a profit. These kinds of investments are the real source of wealth. A house is something that can only be built using existing wealth, whether yours or borrowed. All of this is done because someone convinced policy makers that consumption is somehow what causes prosperity. This is incorrect. It's actually PRODUCTION that creates prosperity. To consume something, someone has to produce it first. Everybody may want a car but until Henry Ford figures out how to produce it cheaply enough, they won't get one. And that's over investment in real estate is a problem: it takes capital away from innovation. It DELAYS innovations. And those delays cost trillions, depending on what time period you're looking at. Certainly delaying the invention of the assembly line by a century would have cost trillions.

pas 5y ago
There's no shortage of capital, there is a shortage of risk taking. It's a coordination problem. The mechanisms that regularly work on this (politics, markets) are not as effective as they could be, because of interdependencies, blockages, ideologies, etc.

brippalcharrid 5y ago

This is a symptom of the "gradual disappearance of a rate of return on accumulated wealth" that Keynes daydreamed about in 1936, and we're going to witness more and more of the social changes that result from it. > “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” > “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” J. M. Keynes - "The Economic Consequences of the Peace" Further analysis: https://monetary-metals.com/keynes-was-a-vicious-bastard-report-17-mar/ https://monetary-metals.com/keynes-was-a-vicious-bastard-rep...

rambojazz 5y ago

My bank offers less-than-inflation rates. That's ridiculous.

juanani 5y ago

Apparently, economists on HN are heavily invested in protecting their bigbro banks and furthering class warfare. Their paychecks rely on this, sadly not surprised. I nominate this thread for future mental olympics studies.

un-devmox 5y ago

Off topic but I noticed while reading the archive.md article I highlighted some text by accident and noticed that the URL was updated to point to that text, https://archive.md/REmb8#selection-2437.0-2437.5 https://archive.md/REmb8#selection-2437.0-2437.5. I've never seen this before. I know Chrome has 'Copy Link to Highlight' but this appears to be different and cross browser compatible. Does someone have any info on how this works? I'm assuming that URL is updated via JavaScript. What about when browsing to the URL? I think this is handy and something I'd like to incorporate into a blog site I'm building.

raxi 5y ago
http://trilema.com/2015/that-spiffy-selection-thing/ http://trilema.com/2015/that-spiffy-selection-thing/

bacan 5y ago

We figured all this out nearly 8 months ago on Reddit - r/superstonk. Low interest rates will start to go away starting Jan 1 2022 and eliminated by Jun 2023