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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 artif

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
      Lowering the tax rate on improvements would probably have the side effect of having more remodeling work be inspected. Much of the avoidance of building permits (and associated inspections) is about avoiding increased assessments and associated taxes. This in turn would likely lead to less totally slipshod remodeling work, at least by people who weren’t aiming for that outcome.
      - larsiusprime 5y ago
        Wait why would LOWERING the tax rate on improvements INCREASE the amount of building inspections? Are you assuming that this would lead to an increased reliance on the cost approach for assessments?
        sokoloff 5y ago
        With a high tax on improvements (as is the case today), there is incentive to make improvements in a way that the municipality won’t know about (as is the case today). The easiest way for the municipality to learn about improvements is via the building department permitting and inspections process, so a lot of work is done without pulling permits. Lowering or removing this disincentive would increase the amount of work that gets inspected. As an owner-occupant, I want the inspections and am willing to pay one-time for an impartial second set of eyes. As an owner-occupant, I do not want to pay a recurring subscription fee (in the form of higher property tax) as a result of the inspection. Given how many properties have obviously recent remodels and no permits pulled in the last 30 years, it’s fair to say that at least some of the market has decided that permits aren’t worth the tax increases.
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?

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
    Lowering the tax rate on improvements would probably have the side effect of having more remodeling work be inspected. Much of the avoidance of building permits (and associated inspections) is about avoiding increased assessments and associated taxes. This in turn would likely lead to less totally slipshod remodeling work, at least by people who weren’t aiming for that outcome.
    - larsiusprime 5y ago
      Wait why would LOWERING the tax rate on improvements INCREASE the amount of building inspections? Are you assuming that this would lead to an increased reliance on the cost approach for assessments?
      - sokoloff 5y ago
        With a high tax on improvements (as is the case today), there is incentive to make improvements in a way that the municipality won’t know about (as is the case today). The easiest way for the municipality to learn about improvements is via the building department permitting and inspections process, so a lot of work is done without pulling permits. Lowering or removing this disincentive would increase the amount of work that gets inspected. As an owner-occupant, I want the inspections and am willing to pay one-time for an impartial second set of eyes. As an owner-occupant, I do not want to pay a recurring subscription fee (in the form of higher property tax) as a result of the inspection. Given how many properties have obviously recent remodels and no permits pulled in the last 30 years, it’s fair to say that at least some of the market has decided that permits aren’t worth the tax increases.

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?