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People fail to appreciate how much leveraged financing affects the design of houses. If you pay 100% for a house and you decide to build something only you appr

People fail to appreciate how much leveraged financing affects the design of houses. If you pay 100% for a house and you decide to build something only you appreciate using 10% of your budget, you will lose 10% of your investment when selling the house. If you put down 20% and have the bank finance 80%, then the same decision will wipe out 50% of your investment. This means for financed houses, "resale value" becomes the preeminent decision affecting the design of a house. In Economics, this is known as a "Keynesian Beauty Contest" [1] where your job is to predict what everyone else predicts will be the most popular option and Keynesian Beauty Contests can get weird. eg: It's quite possible that you might personally hate granite countertops but still feel the need to put a granite countertop in your home because you believe it will help the resale value of your home. It's quite possible for everyone in a community to all hate granite countertops but for everyone to still put granite countertops in their home because they believe everyone else loves granite countertops. It's quite possible for everyone in a community to hate granite countertops and to know that everyone else hates granite countertops and still make the economically rational decision to put a granite countertop in their house to help with the resale value. A lot of "economically irrational" housing decisions are driven by this core transformation via Mortgage Backed Securities of a house from a consumption based purchase of a place to enjoy living into an investment asset that dominates most people's finances. It's only in houses built for the independently wealthy that don't really care about the future resale value of their houses that a lot of the good building science expertise still lies. That's why, paradoxically, in countries much poorer than the US/UK/Aus/NZ, you see much better building quality because their finance systems are also less developed. [1] https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest

gruez 5y ago
>That's why, paradoxically, in countries much poorer than the US/UK/Aus/NZ, you see much better building quality because their finance systems are also less developed. source? China isn't well known for their well built buildings for example.
- oldsecondhand 5y ago
  I can't give you hard stats, but in Hungary in the 80s (i.e. socialist times) people were building their own houses in the villages (i.e. with the help from extended family only hiring tradesman when you don't have that trade in family) so there was little reason to cut corners. It also avoided the cookie cutter look of American suburbs. These are brick houses, so they're quite sturdy, and could be modernized by adding external insulation. Most of these houses were built with double glazed windows to begin with, so I was pretty surprised that in Britain or Spain it isn't default.

gruez 5y ago

>That's why, paradoxically, in countries much poorer than the US/UK/Aus/NZ, you see much better building quality because their finance systems are also less developed. source? China isn't well known for their well built buildings for example.

oldsecondhand 5y ago
I can't give you hard stats, but in Hungary in the 80s (i.e. socialist times) people were building their own houses in the villages (i.e. with the help from extended family only hiring tradesman when you don't have that trade in family) so there was little reason to cut corners. It also avoided the cookie cutter look of American suburbs. These are brick houses, so they're quite sturdy, and could be modernized by adding external insulation. Most of these houses were built with double glazed windows to begin with, so I was pretty surprised that in Britain or Spain it isn't default.