5 ms·

> But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have

> But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect <coughsubprime>.) Reverting to a situation where only the rich and connected can get loans would be a negative consequence. I hope the government of Croatia can counter that. I have the opposite reading of history. Mortgages have been a force of social stagnation in the developed world[1]. What mortgages have done is create lots of middle class property owners. These people have a strong interest in keeping property prices high. Politicians are only too happy to oblige them. Thus society has bifurcated into the "have houses" and the "have nots". The middle classes throw their weight around to prevent new houses being built, as every new house decreases the price of the houses around it. Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house. But the financial institutions have tied enough of the population into mortgages and home ownership that developed world poverty cannot be eradicated without a serious amount of middle class hurt. [1] (I can only speak for the UK but I guess Croatia, like all countries, will end up in this situation eventually)

reinhardt 12y ago
> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house. If only that was true. The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions below: http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate http://en.wikipedia.org/wiki/List_of_countries_by_home_owner...
- riffraff 12y ago
  notice that ex-warsaw-pact countries all have high home ownership due to having expropriated property and having had large "social building" projects (which also lead to some horrible places though).
- ciupicri 12y ago
  Though quite a lot of Romanians still have mortgages to pay. And to add to the injury, some are in Swiss francs.
- AnthonyMouse 12y ago
  > The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions That has very little to do with the question. Housing costs the same amount to construct whether it's rented as apartments or sold as condominiums and the amount people are paying in rent is generally sufficient for the owner of the apartment to turn a profit. The problem is they can't afford to buy the housing they're living in and the mortgage interest tax deduction only makes it worse. The reason renters can't buy is that they have bad credit and no down payment. The tax deduction doesn't change that, but what it does is cause the people who can get a mortgage to bid up housing prices. Higher prices requires people at the margin to have a higher down payment, which pushes them back into renting. Meanwhile higher home prices put upward pressure on rents because renters have to pay enough to overcome the landlord's opportunity cost of converting many small apartments into fewer large condos. The higher rents make it again harder for people at the margin to save a down payment, pushing them further away from home ownership. Then the people who have paid $250K for a house that should be worth $150K realize that the price of that asset has an unduly large consequence for their net worth, so they push to eliminate high density housing and do everything possible to increase housing prices. After that the house that should have cost $150K costs $450K and the idea of doing anything to reduce housing prices is very politically unpopular indeed. Making housing affordable is easy: Subsidize the construction of high density housing and penalize destroying existing high density housing without replacing it. "Make housing more affordable" is literally the same thing as "lower housing prices." Increase the supply, price goes down, more people can afford it. Meanwhile middle class people invest more of their money in economically productive activities rather than housing speculation.
  - ptaipale 12y ago
    > The reason renters can't buy is that they have bad credit and no down payment. At least over here, the reason is not bad credit nor need for down payment. The reason is that they do not have enough regular, stable income. Their rents are subsidized, but the same subsidy is not available for buying property. Which does make some sense, of course. > Making housing affordable is easy: Subsidize the construction of high density housing No. Generally, in European countries and areas with high demand for housing, subsidizing construction is not necessary, and could be counter-productive. Making land available for construction is enough. In areas of high demand, housing is much more expensive than construction cost, and that is because there is more demand than there is supply. And in areas where there is shortage of housing, supply is limited not by inability to construct, but by unavailability of plots to build. Give me some land, and I can build a house myself.
wyager 12y ago
>Thus society has bifurcated into the "have houses" and the "have nots". I don't think this applies as much in the US. A house that would cost $20,000,000 in Manhattan might cost $20,000 in Tennessee. Owning a house isn't a very good measure of wealth in the US, because almost anyone can do it.
dingaling 12y ago
> The middle classes throw their weight around to prevent new houses being built Most middle- class folk I know are too busy cutting expenses to clear their mortgage sooner than to care about the ability of other people to buy houses. Why would they care? You pay off your mortgage and you're done.
- jljljl 12y ago
  I'm guessing because: 1) A lot of middle class folk who buy houses see it as an investment, and they hope to seem some return on that investment driven by rising prices. 2) A lot of middle-class folk tap into their home equity to pay for major expenses (see HELOCs and 2nd Mortgages). Rising home values give homeowners more equity to tap into.
- TheOtherHobbes 12y ago
  Paying off your mortgage is a significant drain on resources when house prices have been driven through the roof by speculation and inflation. (See also the Bay Area.) Disposable income drives the economy. If people are cutting instead of spending everyone loses - except property loan lenders. Affordable housing frees up money for new businesses. Second to education, it's one of the strongest prosperity generators.
  - jljljl 12y ago
    If you are in the middle of paying your mortgage, and housing prices rise, you actually benefit, because the equity of your home will increase. It's new homeowners who will struggle to pay.
    - walshemj 12y ago
      As long as you have a reasonable level of inflation.
mcintyre1994 12y ago
> If it did, poverty would all but disappear; it's hard to be poor when you have your own house. I disagree. It's not so much a case of having, as a case of owing, a lot of money. Direct experience from my own family, it's really really easy to make yourself poor when you have a mortgage - because you can remortgage. And way too many predatory lenders are more than happy to let you do that until you owe more than the value of your house. Having a house makes it easy to borrow too much because you have an asset you can leverage and that way too many predators will let you leverage terribly. I agree with your comment in general, it seems reasonable - and I'm sure things would be better if everyone had their own house. But that wouldn't stop people being poor, not if their house came with tens of thousands of debt and they could leverage it to borrow more.
tcbawo 12y ago
In the United States, there is a huge difference between owning your house outright and through a mortgage. As a leveraged investment, homeowners are more home speculators, requiring ever increasing values to be profitable. Up until the last decade, this had been a great engine of wealth creation for the middle class.
mseebach 12y ago
> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. The trick isn't building n houses. It's building n houses where people actually want to live. Oh, and also the bit where the houses should be of the kind people actually want to live in. The UK, as you are no doubt aware, but for quite understandable reasons you neglected to mention, ran with pretty much exactly that idea in the decades following WWII. To the extent that solved anything, it was in a strictly numerical sense.

reinhardt 12y ago

> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house. If only that was true. The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions below: http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate http://en.wikipedia.org/wiki/List_of_countries_by_home_owner...

riffraff 12y ago
notice that ex-warsaw-pact countries all have high home ownership due to having expropriated property and having had large "social building" projects (which also lead to some horrible places though).
ciupicri 12y ago
Though quite a lot of Romanians still have mortgages to pay. And to add to the injury, some are in Swiss francs.
AnthonyMouse 12y ago
> The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions That has very little to do with the question. Housing costs the same amount to construct whether it's rented as apartments or sold as condominiums and the amount people are paying in rent is generally sufficient for the owner of the apartment to turn a profit. The problem is they can't afford to buy the housing they're living in and the mortgage interest tax deduction only makes it worse. The reason renters can't buy is that they have bad credit and no down payment. The tax deduction doesn't change that, but what it does is cause the people who can get a mortgage to bid up housing prices. Higher prices requires people at the margin to have a higher down payment, which pushes them back into renting. Meanwhile higher home prices put upward pressure on rents because renters have to pay enough to overcome the landlord's opportunity cost of converting many small apartments into fewer large condos. The higher rents make it again harder for people at the margin to save a down payment, pushing them further away from home ownership. Then the people who have paid $250K for a house that should be worth $150K realize that the price of that asset has an unduly large consequence for their net worth, so they push to eliminate high density housing and do everything possible to increase housing prices. After that the house that should have cost $150K costs $450K and the idea of doing anything to reduce housing prices is very politically unpopular indeed. Making housing affordable is easy: Subsidize the construction of high density housing and penalize destroying existing high density housing without replacing it. "Make housing more affordable" is literally the same thing as "lower housing prices." Increase the supply, price goes down, more people can afford it. Meanwhile middle class people invest more of their money in economically productive activities rather than housing speculation.
- ptaipale 12y ago
  > The reason renters can't buy is that they have bad credit and no down payment. At least over here, the reason is not bad credit nor need for down payment. The reason is that they do not have enough regular, stable income. Their rents are subsidized, but the same subsidy is not available for buying property. Which does make some sense, of course. > Making housing affordable is easy: Subsidize the construction of high density housing No. Generally, in European countries and areas with high demand for housing, subsidizing construction is not necessary, and could be counter-productive. Making land available for construction is enough. In areas of high demand, housing is much more expensive than construction cost, and that is because there is more demand than there is supply. And in areas where there is shortage of housing, supply is limited not by inability to construct, but by unavailability of plots to build. Give me some land, and I can build a house myself.

wyager 12y ago

>Thus society has bifurcated into the "have houses" and the "have nots". I don't think this applies as much in the US. A house that would cost $20,000,000 in Manhattan might cost $20,000 in Tennessee. Owning a house isn't a very good measure of wealth in the US, because almost anyone can do it.

dingaling 12y ago

> The middle classes throw their weight around to prevent new houses being built Most middle- class folk I know are too busy cutting expenses to clear their mortgage sooner than to care about the ability of other people to buy houses. Why would they care? You pay off your mortgage and you're done.

jljljl 12y ago
I'm guessing because: 1) A lot of middle class folk who buy houses see it as an investment, and they hope to seem some return on that investment driven by rising prices. 2) A lot of middle-class folk tap into their home equity to pay for major expenses (see HELOCs and 2nd Mortgages). Rising home values give homeowners more equity to tap into.
TheOtherHobbes 12y ago
Paying off your mortgage is a significant drain on resources when house prices have been driven through the roof by speculation and inflation. (See also the Bay Area.) Disposable income drives the economy. If people are cutting instead of spending everyone loses - except property loan lenders. Affordable housing frees up money for new businesses. Second to education, it's one of the strongest prosperity generators.
- jljljl 12y ago
  If you are in the middle of paying your mortgage, and housing prices rise, you actually benefit, because the equity of your home will increase. It's new homeowners who will struggle to pay.
  - walshemj 12y ago
    As long as you have a reasonable level of inflation.

mcintyre1994 12y ago

> If it did, poverty would all but disappear; it's hard to be poor when you have your own house. I disagree. It's not so much a case of having, as a case of owing, a lot of money. Direct experience from my own family, it's really really easy to make yourself poor when you have a mortgage - because you can remortgage. And way too many predatory lenders are more than happy to let you do that until you owe more than the value of your house. Having a house makes it easy to borrow too much because you have an asset you can leverage and that way too many predators will let you leverage terribly. I agree with your comment in general, it seems reasonable - and I'm sure things would be better if everyone had their own house. But that wouldn't stop people being poor, not if their house came with tens of thousands of debt and they could leverage it to borrow more.

tcbawo 12y ago

In the United States, there is a huge difference between owning your house outright and through a mortgage. As a leveraged investment, homeowners are more home speculators, requiring ever increasing values to be profitable. Up until the last decade, this had been a great engine of wealth creation for the middle class.

mseebach 12y ago

> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. The trick isn't building n houses. It's building n houses where people actually want to live. Oh, and also the bit where the houses should be of the kind people actually want to live in. The UK, as you are no doubt aware, but for quite understandable reasons you neglected to mention, ran with pretty much exactly that idea in the decades following WWII. To the extent that solved anything, it was in a strictly numerical sense.