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Housing is one of those issues where the political paradigm is so complex, it's impenetrable. Everyone has their own opinions about what the main engine is and

by netcan 12y ago

Housing is one of those issues where the political paradigm is so complex, it's impenetrable. Everyone has their own opinions about what the main engine is and it's hard to get anywhere. Here's my own perspective, it has nothing to do with any city in particular. (A) Housing is not a free market. Supply and demand exist, but that is not enough to make a market free. It's never a free market because decisions are (necessarily or not) always made at the political level. This covers things from planning, interest rate policies, bankruptcy laws tenancy laws, and even things like bank bailouts. Housing is unavoidably political. (B) There is a conflict of interests between home owners and renters. One wants high prices, low availability, the other wants low prices. (C) There are lots of interests that fall on the rising prices side. Rising prices make it easier to make money on loans, building, etc. They make it easier to raise tax revenue that funds public services that all sorts of parties have an interest in. (D) Owner-occupiers should be neutral. They own one house, regardless of market price. But because of financing, and a lot of incorrect but persistent psychology about personal wealth they usually feel firmly on the high prices side. No one wants their house to lose value. (E) Nominal increase in property value is inflation. Inflation has real impact on the "real" economy (as economists use the term). This has to do with the value of outstanding loans and annuities. We are looking at problems that are mostly political and cultural as if they are economic. Ultimately a lot of the things that drive demand for houses are the same as the things that drive demand for universities. Demand for elite universities is not about competing for education as a scarce resource. Same with housing. It's not about competition and scarcity . It's about culture and politics.

chrisseaton 12y ago
"Owner-occupiers should be neutral" Except for people who want their home to provide a cash inheritance for their children when they die, or who want to sell their home and downsize while still alive to raise cash. That's not an incorrect psychology.
- netcan 12y ago
  Those are edge cases and they can go both ways. Inheritance for their children to buy a house with? Even with inheritance, it can be zero sum. You inherit a house which you use to clear a mortgage or buy your own house. You still have one house. Unless the houses multiply there is nor real addition of wealth. Some people do accumulate capital in their houses and downsize. But even in cases where it happens, they might have been better of with cheaper housing costs all their lives enabling savings amounting to more capital at retirement. Homeowners might end up on either side of this equation. Rapid growth periods place earlier buyers in a better relative place to later buyers. But I think the upside is over valued by home owners while the downside is undervalued. Much of the upside is in fact access to capital. It's interesting how foreign the idea that lower prices make us wealthier is when it comes to housing.
  - mattmanser 12y ago
    Edge cases? That's the entire middle class you just called an edge case. You might be able to do the math, they can't. All they know is that they bought for £150k, sold for £175k, woohoo, they made £25k. Doesn't matter their new house was even more expensive. Also the baby boomers cashed out big on their houses before the recession, so their children irrationally believe that's what's going to happen to them. All your other (pretty good) points now look slightly ridiculous by association because you're so out of touch with normal people.
    - netcan 12y ago
      I meant that instances where homeowners really win or lose significantly from rising house prices are edge cases. They exist and are common. But, they go both ways. I believe that the mentality you are describing is generated by the system moreso than it generates the system. If people expected their £150k house in Norwich to be worth £125k in 10 years, the whole psychology would change. people would see houses as what they are. Things that cost money. Things you live in. *I also think that all the mortgage encouragement is counterproductive. If 10 year loans were the norm, house prices would be lower. Own-to-let would require higher returns (7-9%) over a lower purchase cost, but housing as an overall cost to the people in the country would be lower.

by netcan 12y ago

chrisseaton 12y ago

"Owner-occupiers should be neutral" Except for people who want their home to provide a cash inheritance for their children when they die, or who want to sell their home and downsize while still alive to raise cash. That's not an incorrect psychology.

netcan 12y ago
Those are edge cases and they can go both ways. Inheritance for their children to buy a house with? Even with inheritance, it can be zero sum. You inherit a house which you use to clear a mortgage or buy your own house. You still have one house. Unless the houses multiply there is nor real addition of wealth. Some people do accumulate capital in their houses and downsize. But even in cases where it happens, they might have been better of with cheaper housing costs all their lives enabling savings amounting to more capital at retirement. Homeowners might end up on either side of this equation. Rapid growth periods place earlier buyers in a better relative place to later buyers. But I think the upside is over valued by home owners while the downside is undervalued. Much of the upside is in fact access to capital. It's interesting how foreign the idea that lower prices make us wealthier is when it comes to housing.
- mattmanser 12y ago
  Edge cases? That's the entire middle class you just called an edge case. You might be able to do the math, they can't. All they know is that they bought for £150k, sold for £175k, woohoo, they made £25k. Doesn't matter their new house was even more expensive. Also the baby boomers cashed out big on their houses before the recession, so their children irrationally believe that's what's going to happen to them. All your other (pretty good) points now look slightly ridiculous by association because you're so out of touch with normal people.
  - netcan 12y ago
    I meant that instances where homeowners really win or lose significantly from rising house prices are edge cases. They exist and are common. But, they go both ways. I believe that the mentality you are describing is generated by the system moreso than it generates the system. If people expected their £150k house in Norwich to be worth £125k in 10 years, the whole psychology would change. people would see houses as what they are. Things that cost money. Things you live in. *I also think that all the mortgage encouragement is counterproductive. If 10 year loans were the norm, house prices would be lower. Own-to-let would require higher returns (7-9%) over a lower purchase cost, but housing as an overall cost to the people in the country would be lower.