I think there is a problem with the idea of the 'average property owner'. For instance, my wife and I own one property and have three children. If properties were $250,000 cheaper, wouldn't we be better off as a family by $500,000? By contrast, a couple with 5 properties and no children, would be worse off by $2.5 million. Also, if a young couple who owned a small apartment wanted to upgrade to larger property, wouldn't they be better off if prices were to fall? It seems to me that the winners from lower house prices are far more numerous than just renters, and the losers are far fewer than all owners. Really, the losers would be heavily concentrated amongst the owners of investment properties.
A very good comment Bill. Yes, the redistributive effects are a little more complex than this simplified analysis. There are also grandchildren to consider. But I still think the general analysis holds and helps to think about what we want from housing.
In my article I outline how to remove interest costs and real estate costs from the house market. Each house that joins makes the capital available for further investment and reduces the cost of maintenance and potentially removes the need for insurance. It will provide the funds to "Rewire Australia". Simple complex adaptive system models of the new market do not show the interactions with the rest of economy or of the financial system but I expect major changes particularly in the distribution of wealth across society.
I really like the framing and potential goals. However, the idea that every policy so equivalent for example upcoming vs rent control is not fully true.
It may be true in theory for this specific scenario but there are lots of factors. Considering Housing as a complex adaptive system will mean that we may see effects which are undesirable as well as desirable. This can change based on which policy we explore.
To truly understand the effect we need to see the three dimensional view of the landscape and then explore which policy action creates which outcomes.
I agree and wonder why it is such a struggle to clarify the difference between nominal spending and the impact on the underlying real resources being directed in the economy. People can understand in plain terms that handing everyone $1m won't immediately give everyone a house - because the nominal and the real are decoupled. And that if we give $1m to x% of the people and take $1m from some other % of the people that one part of the population will now be able to buy houses that others can't.
But we don't seem to have the language in place to describe that even simple taxes/levies/subsidies are all just playing the same game using nominal in order to reassign the existing real.
It has many advanced options, and can help illustrate the point that housing prices are some form of NPV of anticipated future rents, and that "anticipated future rents" holds enough variables and uncertainties to explain quite a bit of variation in current day housing prices.
I think the general point you are making here is about the so-called housing symmetry you discuss in your book, which is probably an accounting identity. Policy interventions meant to reduce rents, by accounting rules, reduce the yield on assets that produce those rents and therefore asset values themselves. This produces an accounting balance sheet transfer from one cohort to another, regardless of how the rent reductions take place.
From a policy perspective it be worthwhile to make this transfer, but that is not relevant to the accountant balance sheet.
It may be helpful to explain housing metaphorically as a kind of "bond" which people just happen to live in and whose rents or mortgages generate the bond's interest payments. Any bond that pays less interest is worth less on the open market. The NYT calculator shows the bond is complex, but a bond nevertheless.
I think there is a problem with the idea of the 'average property owner'. For instance, my wife and I own one property and have three children. If properties were $250,000 cheaper, wouldn't we be better off as a family by $500,000? By contrast, a couple with 5 properties and no children, would be worse off by $2.5 million. Also, if a young couple who owned a small apartment wanted to upgrade to larger property, wouldn't they be better off if prices were to fall? It seems to me that the winners from lower house prices are far more numerous than just renters, and the losers are far fewer than all owners. Really, the losers would be heavily concentrated amongst the owners of investment properties.
A very good comment Bill. Yes, the redistributive effects are a little more complex than this simplified analysis. There are also grandchildren to consider. But I still think the general analysis holds and helps to think about what we want from housing.
Isn't blanket upzoning expected to INCREASE home prices?
Yes for the houses that can be economically redeveloped
Final Jeopardy:
“What is land value tax?”
Wager:
100%
I have just published an article Permanent Home Markets at https://open.substack.com/pub/kevincbr/p/permanent-home-markets
that reference a previous article by you.
In my article I outline how to remove interest costs and real estate costs from the house market. Each house that joins makes the capital available for further investment and reduces the cost of maintenance and potentially removes the need for insurance. It will provide the funds to "Rewire Australia". Simple complex adaptive system models of the new market do not show the interactions with the rest of economy or of the financial system but I expect major changes particularly in the distribution of wealth across society.
I really like the framing and potential goals. However, the idea that every policy so equivalent for example upcoming vs rent control is not fully true.
It may be true in theory for this specific scenario but there are lots of factors. Considering Housing as a complex adaptive system will mean that we may see effects which are undesirable as well as desirable. This can change based on which policy we explore.
To truly understand the effect we need to see the three dimensional view of the landscape and then explore which policy action creates which outcomes.
Sure. As I say, there are other effects. But for the existing 10 million households the bulk of the economic effect is pure redistribution.
Possible but only in the short term. What is the long term effect on rentals and prices and supple and other issues?
I agree and wonder why it is such a struggle to clarify the difference between nominal spending and the impact on the underlying real resources being directed in the economy. People can understand in plain terms that handing everyone $1m won't immediately give everyone a house - because the nominal and the real are decoupled. And that if we give $1m to x% of the people and take $1m from some other % of the people that one part of the population will now be able to buy houses that others can't.
But we don't seem to have the language in place to describe that even simple taxes/levies/subsidies are all just playing the same game using nominal in order to reassign the existing real.
FYI The New York Times published a quite thorough rent v buy calculator. You can find it here: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
It has many advanced options, and can help illustrate the point that housing prices are some form of NPV of anticipated future rents, and that "anticipated future rents" holds enough variables and uncertainties to explain quite a bit of variation in current day housing prices.
I think the general point you are making here is about the so-called housing symmetry you discuss in your book, which is probably an accounting identity. Policy interventions meant to reduce rents, by accounting rules, reduce the yield on assets that produce those rents and therefore asset values themselves. This produces an accounting balance sheet transfer from one cohort to another, regardless of how the rent reductions take place.
From a policy perspective it be worthwhile to make this transfer, but that is not relevant to the accountant balance sheet.
It may be helpful to explain housing metaphorically as a kind of "bond" which people just happen to live in and whose rents or mortgages generate the bond's interest payments. Any bond that pays less interest is worth less on the open market. The NYT calculator shows the bond is complex, but a bond nevertheless.