Sign up FAST! Login

Will wildly expensive housing devour the economies of wealthy countries? - Quartz

Stashed in: Economics!, Winner take all., Awesome, America!, Homeless, Real Estate, Rich people get richer.

To save this post, select a stash from drop-down menu or type in a new one:

This is a disaster in the making:

There’s a dearth of cheap living space in the US: the supply of homes costing less than $198,000 fell 17% in June compared to 2013, leaving first-time buyers hung out to dry.

It’s not that inventory for sale isn’t growing—it is, but only on the high-end side. Cheaper homes are being snapped up by deep-pocketed investors to rent, or their current owners are still owe more on their mortgages than their homes are worth, and don’t want to take a loss on a sale. Meanwhile, home prices are still increasing—which isn’t an accident, thanks to subsidies to homeowners and restrictive building regulations.

More and more capital is accumulating in the hands of a minority of citizens:

Though some have used experimental data-sets to challenge his results, it does seem clear that wealth inequality is at best stagnant and likely worsening. In the US, for instance (pdf), the wealthiest 10% of Americans own about 75% of private capital.

Rising housing prices have real consequences that people have to live with—just ask the first-time US home-buyers—and returns on real estate investments are meaningful: 

The explanation for the huge increases in housing prices isn’t embedded in the buildings, but in land.

First, cities have become increasingly important economic hub. The old adage “location, location, location” is still important, and it’s one reason for the UK’s massive property boom, centered on London. Second, regulations on urban land use have prevented the supply of housing from keeping up with demand. That’s one reason San Francisco has wildly high home prices.  It’s also why reducing restrictions on land usemade our list of ten ways to fight inequality.

But despite the 2008 crash, there’s no sign that home price increases are slowing, and, along with it, growth in capital. Even Rognlie concedes that Piketty could be right about capital taking over even as he is wrong about the specific mechanism. “The story about the increasing role of capital could be right, but it’s this weird, inverse image,” he told Quartz in June. “Scarcity of housing will continue to go up, and land it sits on will start claiming a larger and larger share of our resources.”

In other words, housing will eat the economy—everybody needs it, but it will be worth more and more, and land-owners will be the capitalists in command, unless we do a better job increasing the supply of housing.

It's not that there's a scarcity of housing... it's that we have now a surplus of fiat money that's been created out of thin air (borrowed from the future) to pay for all the counter-party defaults generated by the previous housing bubble... remember when even your barber/taxi driver/school teacher was flipping real estate.  

Cheap cash is again chasing hard assets and bidding up their relative prices.  And wage incomes have not risen to stay in step with that price inflation.

We've learned nothing and we'll suffer twice...and hopefully only twice.  But it's coming... again.

so have a large pile of cash ready and waiting?

We're always invested, we simply get to choose in what and where we store our excess capital, if we have any... 

Liquidity is always a good idea in interesting times.  And a sense of humor...

Jared if the problem is too much cheap cash, then hoarding cash is not a good strategy because inflation gets you.

Unfortunately, there are no good strategies because timing the market is next to impossible. 

land, fresh water, guns, gold, and technology? anything else needed?

kind people...


Kind people. That's good.