Some people LOVE that markets make trade-offs but HATE when markets make inter-temporal trade-offs. Let's go deep into the economics of why housing markets build faster or slower.
Probably twenty years ago, I had a long/short equity portfolio manager working under me who wanted to get deeper into trading the mining sector. Our brainstorm was to try to model these companies using Real Options theory. It was interesting, but kind of brain-bending for someone who is used to financial options. One of the quirks we ran into was that you could not look a company in isolation. Every gold miner out there was a package of real options, and generally when it started to look like "exercising" made sense for one mine or company (because the gold forward curve had rallied substantially), many other options had gone in the money. And unlike a financial option, where exercise involved paying a known strike price in cash, to "exercise" a real option requires a specific collection of real resources. When everyone tries to exercise... good luck buying the mining equipment you need, hiring the miners you need, etc. I imagine the same is true with building. I was talking about this with some friends who live in the same town where we have some property in Montana. Some in the town are banging on about "restrictive zoning" as the cause of housing price increase. But this is a place where housing is being produced at 4x the per capita rate of the US average. I tried to explain, you are running into physical limits to production that you will not be able to transcend, regardless of zoning. Something like 3% of the workforce in the area is already employed in residential construction. That sector has a 10% wage premium over the average wage in the area, whereas in the US typical that sector's wage is at a discount to average. This is not a town that is close to other big population centers that it can draw people and equipment from. So that is part of the intertemporal trade-off -- are you better off waiting for the "strike price" to decline as those physical constraints abate (in whatever way that might happen)?
The other factor I think is worth considering is the non-capital carrying costs of land. If there is a meaningfully higher rate of taxation on undeveloped land relative to structure value, that increases the carrying cost of land, which should change the intertemporal trade-off in a way that accelerates exercise of the real option, right? Or do you think that when the tax is changed to disfavor raw land, that will be instantly reflect in a one-off adjustment in land price that restores the expected yield to the status-quo-ante?
Great comment. Yes, the physical constraints on sticking the options are very currently very real. In some ways this is just another ingredient in the option calculation—it decreases the net value to striking now.
On the carrying costs from taxes, this is strangely an outstanding question in economics. Does it change the intertemporal trade-off, or is it all priced in upfront in the value of land already? I used to hold the first view, but now I'm shifting more to the second. I think the reality is that implementing a new holding cost (land tax etc) has adjustment effects that DO bring forward building via the churn of ownership from patient to impatient buyers. We have seen this in Victoria (Australia) where new higher land taxes are leading a lot of underutilises land to be sold by asset-rich cash poor owners to new buyers. But I suspect that in a year or two after that is all adjusted there is no persistent intertemporal effect. Does that make sense?
Thanks Benjamin. I appreciate your insight on the construction sector barriers to faster housing supply.
This certainly matches my observation. It also gives lie to the "restrictive zoning" claim.
When construction is running hot, good luck getting a builder on the phone. How can the planning system be the constraint? When construction is cold, with developers building at a fraction of past rates (in Wellington, where I live, at one-quarter of the 2020 rate), how can the planning system be the constraint?
In my fumbling way I have been trying to explain that there are TWO market incentives constraining production of housing to an equilibrium rate:
1) the effect of the rate of production on current vs future price (price effect);
2) the effect of the rate of production on current vs future development cost (cost effect).
There is clearly a convex cost curve for construction. Expanding the construction sector by drawing resources from other industries becomes increasingly costly. You wind up employing B-grade economists to dig holes, which is not very productive.
To extend this point, I can actually see two reasons you are "better off waiting for the "strike price" to decline as those physical constraints abate" (as you put it).
One, construction sector costs will return to prior levels. Two, sector capacity will be larger in future, and costs potentially lower, thanks to today's elevated prices creating an incentive for workers to skill up and supply chains to expand capacity. This only happens with a lag. There is some short-run elasticity of construction levels with respect to price, but there is also a long-run elasticity, which is lower. In a sense, developers that build fast and pay a premium for it during a boom are making it more profitable for other developers to delay. The latter group are in effect "free-riding" on the expansion of construction sector capacity that results from hasty developers paying a premium.
Regarding land tax capitalisation into land prices and whether this matters for the intertemporal trade-off, good question.
I offered a comment about this above. I agree with Cameron that it needs ironing out.
One argument from Nicolaus Tideman is that it changes the intertemporal trade-off not at the level of the individual but at the level of the market, due to selection effects prioritising land ownership by impatient buyers.
I learned from Mason Gaffney about 54 years ago that if the rate if increase in the value of land or the in situ value of an extractable resource exceeds the opportunity cost of capital, an investor will defer development, because the return from doing nothing is higher than the return from development and sale. You have said this in a couple of different ways, including by reference to real options analysis (Gaffney thought of this before Dixit and Pindyck). If the opportunity cost of capital rises, developers will still wait if the rate of increase of the value of the land or the in situ value of the resource is expected to exceed the higher opportunity cost of capital. Doing nothing will continue as long as the former continues to exceed the latter. While higher interest rates can reduce demand for housing, demand could still rise because of increasing population and speculative activity (the real estate casino). These things seem to be continuing to pump up prices fast enough to encourage holding behaviour, maintaining rises prices and continued holding.
With regard to the latter, demand for housing ownership is no longer based solely on having a home to live in and/or avoiding rental insecurity, but now it seems to be driven by the speculative motive of "getting into the market" to capture tax sheltered capital gains. +
Very clear. Thanks. I'm still getting to grips with these ideas so do you mind if I ask a question?
You say:
"If the opportunity cost of capital rises, developers will still wait if the rate of increase of the value of the land or the in situ value of the resource is expected to exceed the higher opportunity cost of capital."
Can I test my understanding of how this effect plays out in reality?
1) The opportunity cost of capital (the interest rate) increases.
2) The present value of future development profits falls and this is capitalised into the land price via an immediate downwards adjustment.
3) The new land value is that which equalises the rate of increase in land value with the rate of return on substitute investments (i.e. the new interest rate). That is, the land price equilibrium always equalises the growth in value of bare land with the rate of return on alternative asset investments (of equal risk).
4) The balance between the increase in value of land and the opportunity cost of capital is restored, so there is no systematic increase or decrease in the rate of conversion of land and cash to housing.
Does that sound about right?
The reason I'm interested is that the capitalisation logic presumably applies to regulatory changes and taxes too. If land values immediately capitalise the expected future it suggests that policy is quite 'sterile'.
After your step 2, the value of an undeveloped land tract or resource, if development commenced immediately (a moving present value), might rise at a rate that is higher than the new opportunity cost of capital because of anticipated population and income growth, anticipated lower future real costs (eg, through technological advances or resolution of supply chain issues), and speculative demand. If so, the landowner sits on the undeveloped property, deferring development, because it is earning more through appreciation in its undeveloped state, than if it was developed immediately. After development, proceeds from its sale earn the opportunity cost of capital.
The value of the property and attaching development rights (reflecting its value at the optimal time to develop it, not the value from immediate development) rises at a rate equal to the opportunity cost of capital.
Development of the property is delayed until the moving present value of immediate development no longer rises faster than the opportunity cost of capital. So output is withheld because it pays the developer to wait, notwithstanding media and political hysteria about the desirability of more supply and the consequent relentless search for scapegoats and quick fixes.
Regarding capitalisation, tax changes such as extension of land tax or reduction of stamp duty, will be capitalised in land prices. Similarly, subsidies to buyers and infrastructure provision will be capitalised in land prices. I think an unanticipated change in immigration rates would also be reflected in land prices.
Putting this stuff into understandable words is not easy. I hope the thoughts above help. If not, I will try again.
Prior to the optimal time of development, the value of the presently-best development project will rise at a rate faster than the opportunity cost of capital, causing the developer to rationally delay development.
The market value of the land equals the value of the presently-best project plus an option premium reflecting the value of the right to delay. This market value rises at a rate equal to the opportunity cost of capital.
When the two rates equal, there are no gains to delay, and the option is struck.
I think that seems clear enough. Thanks for the explainer.
> People say things like “Only zoning is stopping developers from buying land at agricultural prices and building homes”.
I am generally skeptical of this claim as well. It doesn't seem to square with reality or common biz practice. But I've been trying to square the counterfactual with Ricardo's "law of rent". Under Ricardo's setup the only way to reduce rent, is to increase the productivity of the least productive assets--ie upzoning. Granted, it's no guarantee either--if demand is high enough impact would be minimal. We have a lot of land that could be made more productive in this way though, so it seems at least on its face reasonable that upzoning en masse should (theoretically) drive down rents.
Not sure how relevant that "law" is anymore, perhaps detritus.
Nice comment. In my view there are several reasons the analogy with Ricardo doesn't quite work.
The key one is that capital investment is not the same thing as recurrent production.
Housing supply results from housing development, which means committing capital to a specific structure. Because that is irreversible, the timing of investment matters for profit. The flow and stock of housing result from that.
Optimal timing choices also produce lots of vacant and under-developed land. By contrast, the assumption in Ricardo's law of rent is that all land inside the margin of cultivation is used, which makes sense for recurrent production, like agricultural planting.
(Granted, all production is 'investment', where working capital is committed to producing inventory, so the boundaries between these activities are blurry, but over timescales we care about, the difference is clear).
The second problem with the analogy is that in Ricardo's law the margin of cultivation was set by subsistence requirements for the population. When productivity improved, the same mouths could be fed with less land, reducing rent. But for housing we can't assume the same inelastic demand. Demand seems pretty elastic: (1) people seem to spend steady income shares on housing, meaning that if higher density materialises, we'll see increasing floorspace consumed per person, meaning that demand for land and therefore the rent of land will hold up, to some extent; (2) bare land (backyards) is a luxury good... we humans seem to like grass and sky... so cheaper floorspace is likely to also lift demand for bare land space; (3) for a single city in a migration union, migration responds to quality of life differentials. I'm not saying there'll be zero effect of faster housing production (if we can get it) on land rents, but that empirically, it is unlikely to be significant.
Very pleasing to see someone still reasoning with Ricardo's law of rent. It's certainly still relevant. The margin of cultivation/housing tells us about rent inside the margin. But Ricardo was reasoning from premises that reflected his interests in economic growth and the distribution of income, not prices. That makes direct application of some results to housing tricky. One premise was inelastic demand for food, as noted. Another was that rent and profit were the fund from which capital accumulation (and growth) occurred. In his model, higher rents or profits weren't ploughed back in (pardon the pun) to higher demand for agricultural products, but disappeared over to the capital investment part of the economy, creating economic growth. You could have a productivity improvement that reduces total land rent. But in our world, lower land rents get spent somewhere, so the savings make their way at least in part back into land rents.
Massive caveat: I know more classical economics than most people but would never call myself an expert, so don't quote me!
Tax policies associated with negative gearing, capital gains discounts and compulsory superannuation interact. They drive up house prices, challenging affordability for low and middle income Australians and impact on the government’s capacity to directly support low cost housing. How do these policies achieve this?
Negative gearing, by reducing the cost of holding an investment property increases investment demand, pushing up prices and reducing government revenue. Property investors easily outcompete first home buyers, who do not benefit from these tax breaks.
Capital gains tax discounts incentivize speculative property investment for long term capital appreciation rather than short term income generation. They predominantly concentrate wealth at the top end of town, while exacerbating housing affordability for low income workers.
Compulsory superannuation increasingly floods the financial market for real estate investment trusts and property funds. This further inflates housing prices, diverts capital from more productive sectors of the economy, thus limiting opportunities for funding affordable housing projects and other social infrastructure.
Economics has a problem in predicting economic outcomes because it is built on the idea that some money, we call capital, increases in value with the passing of time. Economics makes the assumption that it is the money (or the invested money we call capital) that makes a profit and gives a return on investment. Investments give a return - not the money. Your article makes sense because banks ensure that money increases in value with the passing of time by slowing down the rate at which we repay loans.
However, the reality is that money tokens do not increase in value with the passing of time. Leave your money under your bed and its value is unlikely to go up. Money is a measure of value and making a market in a measure is unlikely to end well. It is like making a market in temperature to supply heat. It is why a capital market like the share market originally set up to get money for investment ends up as a market in existing investments with 5% of trades being new capital. It is why housing markets only produce a new house with every 20% of purchases. Capital markets like to trade existing assets not build new ones.
We know that money does not generate money because today banks have to trick us into believing that new money earns money by charging us a capital return (equal to interest) plus interest. When a banks charges you 6% interest you actually pay 12% (6% of capital gain and 6% interest). Banks are given a license to create new money when they make a loan. They charge you a capital gain by extending your loan by debiting interest but not giving you the money from the extension. They give it to themselves. You can object to this as described here https://medium.com/@kevin-34708/is-your-bank-overcharging-you-9d21b34bbe09 .
If enough of us do and we force the banks to stop pretending that new money earns money as though it were invested we may end up with predictable economics as outlined here. https://kevin-34708.medium.com/predictable-economics-c973d6c68939. When this happens it is likely to stabilise house prices and make housing affordable because the housing market will stop being a capital market trading in a measure of value rather than trading in a real asset.
Probably twenty years ago, I had a long/short equity portfolio manager working under me who wanted to get deeper into trading the mining sector. Our brainstorm was to try to model these companies using Real Options theory. It was interesting, but kind of brain-bending for someone who is used to financial options. One of the quirks we ran into was that you could not look a company in isolation. Every gold miner out there was a package of real options, and generally when it started to look like "exercising" made sense for one mine or company (because the gold forward curve had rallied substantially), many other options had gone in the money. And unlike a financial option, where exercise involved paying a known strike price in cash, to "exercise" a real option requires a specific collection of real resources. When everyone tries to exercise... good luck buying the mining equipment you need, hiring the miners you need, etc. I imagine the same is true with building. I was talking about this with some friends who live in the same town where we have some property in Montana. Some in the town are banging on about "restrictive zoning" as the cause of housing price increase. But this is a place where housing is being produced at 4x the per capita rate of the US average. I tried to explain, you are running into physical limits to production that you will not be able to transcend, regardless of zoning. Something like 3% of the workforce in the area is already employed in residential construction. That sector has a 10% wage premium over the average wage in the area, whereas in the US typical that sector's wage is at a discount to average. This is not a town that is close to other big population centers that it can draw people and equipment from. So that is part of the intertemporal trade-off -- are you better off waiting for the "strike price" to decline as those physical constraints abate (in whatever way that might happen)?
The other factor I think is worth considering is the non-capital carrying costs of land. If there is a meaningfully higher rate of taxation on undeveloped land relative to structure value, that increases the carrying cost of land, which should change the intertemporal trade-off in a way that accelerates exercise of the real option, right? Or do you think that when the tax is changed to disfavor raw land, that will be instantly reflect in a one-off adjustment in land price that restores the expected yield to the status-quo-ante?
Great comment. Yes, the physical constraints on sticking the options are very currently very real. In some ways this is just another ingredient in the option calculation—it decreases the net value to striking now.
On the carrying costs from taxes, this is strangely an outstanding question in economics. Does it change the intertemporal trade-off, or is it all priced in upfront in the value of land already? I used to hold the first view, but now I'm shifting more to the second. I think the reality is that implementing a new holding cost (land tax etc) has adjustment effects that DO bring forward building via the churn of ownership from patient to impatient buyers. We have seen this in Victoria (Australia) where new higher land taxes are leading a lot of underutilises land to be sold by asset-rich cash poor owners to new buyers. But I suspect that in a year or two after that is all adjusted there is no persistent intertemporal effect. Does that make sense?
Thanks Benjamin. I appreciate your insight on the construction sector barriers to faster housing supply.
This certainly matches my observation. It also gives lie to the "restrictive zoning" claim.
When construction is running hot, good luck getting a builder on the phone. How can the planning system be the constraint? When construction is cold, with developers building at a fraction of past rates (in Wellington, where I live, at one-quarter of the 2020 rate), how can the planning system be the constraint?
In my fumbling way I have been trying to explain that there are TWO market incentives constraining production of housing to an equilibrium rate:
1) the effect of the rate of production on current vs future price (price effect);
2) the effect of the rate of production on current vs future development cost (cost effect).
There is clearly a convex cost curve for construction. Expanding the construction sector by drawing resources from other industries becomes increasingly costly. You wind up employing B-grade economists to dig holes, which is not very productive.
To extend this point, I can actually see two reasons you are "better off waiting for the "strike price" to decline as those physical constraints abate" (as you put it).
One, construction sector costs will return to prior levels. Two, sector capacity will be larger in future, and costs potentially lower, thanks to today's elevated prices creating an incentive for workers to skill up and supply chains to expand capacity. This only happens with a lag. There is some short-run elasticity of construction levels with respect to price, but there is also a long-run elasticity, which is lower. In a sense, developers that build fast and pay a premium for it during a boom are making it more profitable for other developers to delay. The latter group are in effect "free-riding" on the expansion of construction sector capacity that results from hasty developers paying a premium.
Regarding land tax capitalisation into land prices and whether this matters for the intertemporal trade-off, good question.
I offered a comment about this above. I agree with Cameron that it needs ironing out.
One argument from Nicolaus Tideman is that it changes the intertemporal trade-off not at the level of the individual but at the level of the market, due to selection effects prioritising land ownership by impatient buyers.
I offer a brief explainer on pp18-19 here:
https://www.prosper.org.au/wp-content/uploads/2024/07/Prosper_SpecVac11_July2024-web.pdf
The original argument is here:
https://schalkenbach.org/wp-content/uploads/Tideman-1995-Taxing-land-better-than-neutral.pdf
Cameron
Thanks for your article.
I learned from Mason Gaffney about 54 years ago that if the rate if increase in the value of land or the in situ value of an extractable resource exceeds the opportunity cost of capital, an investor will defer development, because the return from doing nothing is higher than the return from development and sale. You have said this in a couple of different ways, including by reference to real options analysis (Gaffney thought of this before Dixit and Pindyck). If the opportunity cost of capital rises, developers will still wait if the rate of increase of the value of the land or the in situ value of the resource is expected to exceed the higher opportunity cost of capital. Doing nothing will continue as long as the former continues to exceed the latter. While higher interest rates can reduce demand for housing, demand could still rise because of increasing population and speculative activity (the real estate casino). These things seem to be continuing to pump up prices fast enough to encourage holding behaviour, maintaining rises prices and continued holding.
With regard to the latter, demand for housing ownership is no longer based solely on having a home to live in and/or avoiding rental insecurity, but now it seems to be driven by the speculative motive of "getting into the market" to capture tax sheltered capital gains. +
Hi Ken
Very clear. Thanks. I'm still getting to grips with these ideas so do you mind if I ask a question?
You say:
"If the opportunity cost of capital rises, developers will still wait if the rate of increase of the value of the land or the in situ value of the resource is expected to exceed the higher opportunity cost of capital."
Can I test my understanding of how this effect plays out in reality?
1) The opportunity cost of capital (the interest rate) increases.
2) The present value of future development profits falls and this is capitalised into the land price via an immediate downwards adjustment.
3) The new land value is that which equalises the rate of increase in land value with the rate of return on substitute investments (i.e. the new interest rate). That is, the land price equilibrium always equalises the growth in value of bare land with the rate of return on alternative asset investments (of equal risk).
4) The balance between the increase in value of land and the opportunity cost of capital is restored, so there is no systematic increase or decrease in the rate of conversion of land and cash to housing.
Does that sound about right?
The reason I'm interested is that the capitalisation logic presumably applies to regulatory changes and taxes too. If land values immediately capitalise the expected future it suggests that policy is quite 'sterile'.
Tim
After your step 2, the value of an undeveloped land tract or resource, if development commenced immediately (a moving present value), might rise at a rate that is higher than the new opportunity cost of capital because of anticipated population and income growth, anticipated lower future real costs (eg, through technological advances or resolution of supply chain issues), and speculative demand. If so, the landowner sits on the undeveloped property, deferring development, because it is earning more through appreciation in its undeveloped state, than if it was developed immediately. After development, proceeds from its sale earn the opportunity cost of capital.
The value of the property and attaching development rights (reflecting its value at the optimal time to develop it, not the value from immediate development) rises at a rate equal to the opportunity cost of capital.
Development of the property is delayed until the moving present value of immediate development no longer rises faster than the opportunity cost of capital. So output is withheld because it pays the developer to wait, notwithstanding media and political hysteria about the desirability of more supply and the consequent relentless search for scapegoats and quick fixes.
Regarding capitalisation, tax changes such as extension of land tax or reduction of stamp duty, will be capitalised in land prices. Similarly, subsidies to buyers and infrastructure provision will be capitalised in land prices. I think an unanticipated change in immigration rates would also be reflected in land prices.
Putting this stuff into understandable words is not easy. I hope the thoughts above help. If not, I will try again.
Thanks Ken. Very clear.
I will confirm that by repeating it back.
Prior to the optimal time of development, the value of the presently-best development project will rise at a rate faster than the opportunity cost of capital, causing the developer to rationally delay development.
The market value of the land equals the value of the presently-best project plus an option premium reflecting the value of the right to delay. This market value rises at a rate equal to the opportunity cost of capital.
When the two rates equal, there are no gains to delay, and the option is struck.
I think that seems clear enough. Thanks for the explainer.
> People say things like “Only zoning is stopping developers from buying land at agricultural prices and building homes”.
I am generally skeptical of this claim as well. It doesn't seem to square with reality or common biz practice. But I've been trying to square the counterfactual with Ricardo's "law of rent". Under Ricardo's setup the only way to reduce rent, is to increase the productivity of the least productive assets--ie upzoning. Granted, it's no guarantee either--if demand is high enough impact would be minimal. We have a lot of land that could be made more productive in this way though, so it seems at least on its face reasonable that upzoning en masse should (theoretically) drive down rents.
Not sure how relevant that "law" is anymore, perhaps detritus.
Nice comment. In my view there are several reasons the analogy with Ricardo doesn't quite work.
The key one is that capital investment is not the same thing as recurrent production.
Housing supply results from housing development, which means committing capital to a specific structure. Because that is irreversible, the timing of investment matters for profit. The flow and stock of housing result from that.
Optimal timing choices also produce lots of vacant and under-developed land. By contrast, the assumption in Ricardo's law of rent is that all land inside the margin of cultivation is used, which makes sense for recurrent production, like agricultural planting.
(Granted, all production is 'investment', where working capital is committed to producing inventory, so the boundaries between these activities are blurry, but over timescales we care about, the difference is clear).
The second problem with the analogy is that in Ricardo's law the margin of cultivation was set by subsistence requirements for the population. When productivity improved, the same mouths could be fed with less land, reducing rent. But for housing we can't assume the same inelastic demand. Demand seems pretty elastic: (1) people seem to spend steady income shares on housing, meaning that if higher density materialises, we'll see increasing floorspace consumed per person, meaning that demand for land and therefore the rent of land will hold up, to some extent; (2) bare land (backyards) is a luxury good... we humans seem to like grass and sky... so cheaper floorspace is likely to also lift demand for bare land space; (3) for a single city in a migration union, migration responds to quality of life differentials. I'm not saying there'll be zero effect of faster housing production (if we can get it) on land rents, but that empirically, it is unlikely to be significant.
Very pleasing to see someone still reasoning with Ricardo's law of rent. It's certainly still relevant. The margin of cultivation/housing tells us about rent inside the margin. But Ricardo was reasoning from premises that reflected his interests in economic growth and the distribution of income, not prices. That makes direct application of some results to housing tricky. One premise was inelastic demand for food, as noted. Another was that rent and profit were the fund from which capital accumulation (and growth) occurred. In his model, higher rents or profits weren't ploughed back in (pardon the pun) to higher demand for agricultural products, but disappeared over to the capital investment part of the economy, creating economic growth. You could have a productivity improvement that reduces total land rent. But in our world, lower land rents get spent somewhere, so the savings make their way at least in part back into land rents.
Massive caveat: I know more classical economics than most people but would never call myself an expert, so don't quote me!
Tax policies associated with negative gearing, capital gains discounts and compulsory superannuation interact. They drive up house prices, challenging affordability for low and middle income Australians and impact on the government’s capacity to directly support low cost housing. How do these policies achieve this?
Negative gearing, by reducing the cost of holding an investment property increases investment demand, pushing up prices and reducing government revenue. Property investors easily outcompete first home buyers, who do not benefit from these tax breaks.
Capital gains tax discounts incentivize speculative property investment for long term capital appreciation rather than short term income generation. They predominantly concentrate wealth at the top end of town, while exacerbating housing affordability for low income workers.
Compulsory superannuation increasingly floods the financial market for real estate investment trusts and property funds. This further inflates housing prices, diverts capital from more productive sectors of the economy, thus limiting opportunities for funding affordable housing projects and other social infrastructure.
Economics has a problem in predicting economic outcomes because it is built on the idea that some money, we call capital, increases in value with the passing of time. Economics makes the assumption that it is the money (or the invested money we call capital) that makes a profit and gives a return on investment. Investments give a return - not the money. Your article makes sense because banks ensure that money increases in value with the passing of time by slowing down the rate at which we repay loans.
However, the reality is that money tokens do not increase in value with the passing of time. Leave your money under your bed and its value is unlikely to go up. Money is a measure of value and making a market in a measure is unlikely to end well. It is like making a market in temperature to supply heat. It is why a capital market like the share market originally set up to get money for investment ends up as a market in existing investments with 5% of trades being new capital. It is why housing markets only produce a new house with every 20% of purchases. Capital markets like to trade existing assets not build new ones.
We know that money does not generate money because today banks have to trick us into believing that new money earns money by charging us a capital return (equal to interest) plus interest. When a banks charges you 6% interest you actually pay 12% (6% of capital gain and 6% interest). Banks are given a license to create new money when they make a loan. They charge you a capital gain by extending your loan by debiting interest but not giving you the money from the extension. They give it to themselves. You can object to this as described here https://medium.com/@kevin-34708/is-your-bank-overcharging-you-9d21b34bbe09 .
If enough of us do and we force the banks to stop pretending that new money earns money as though it were invested we may end up with predictable economics as outlined here. https://kevin-34708.medium.com/predictable-economics-c973d6c68939. When this happens it is likely to stabilise house prices and make housing affordable because the housing market will stop being a capital market trading in a measure of value rather than trading in a real asset.