Housing is an interesting topic. It is part of our essential needs, and yet it is also a fully “in Play” Financialisation Pawn.
Because everyone needs it – and because every aspect of it can be gamed, it is wide open to being used to make money.
From Real-estate developers to Real-estate agents, builders, speculators, local body authorities, Building material suppliers, Banks, Insurers, and even regular owners. Everyone is out to make a buck.
It has become so wound up in the finacialisation of our economic system that it was the proximate cause of the GFC. Bad home loans threatened to pull down the global financial system, and they eventually still may.
The way to make money from housing is to utilise any and all means to force up the price. And everyone from Central Banks to first home buyers have contributed.
By the time that so much of a nations , and peoples, wealth is tied up in property (notably housing), even governments are complicit in the problem. They pass legislation that condones and facilitates it. And their central banks play money games to enable it.
Cheap interest rates are a direct result of government interference, because they know that to choke the establish flow of money and trading in housing would be to severely depress the economy. Casino gambling on housing is now the largest part of the economy.
But – that which cannot be sustained – wont be.
When the time comes that the old system fails, then there needs to be options in place that offer alternatives. Particularly when the consequences will be people living in the streets.
Interestingly, even during the worst depression or housing crisis, it isn’t that there isn’t housing available, it is that the owners of that housing are not prepared to allow other peoplpe to live in it.
Unless the tenants can pay the rent, they will be thrown out.
And houses will sit empty.
Not because they couldn’t be filled, but because they couldn’t be filled with people able to pay the money that the owners are wanting. So you end up with ghost cities… and deserted housing.
Actually, interestedly, there is no rational reason in the world why housing should be expensive. Except for the macro environment we have deliberately created – for the profit of the few.
With a few simply changes to the laws and regulations you could absolutely crash the whole housing/property market and housing would be dirt cheap.
But as our prime minister said, “no-one would thank you for doing that”. No-one rich that is.
So many people have so much wealth tied up in the real-estate status-quo, that it is currently a political impossibility to change our current system. So the poorest and most vulnerable live is appalling conditions, while the rich have fabulous houses, and likely several of them, sitting empty.
Lets assume for the moment that the decision was made to fundamentally restructure our economy and Housing
What could and would need to change?
Well first lets look at several things which would collapse the housing market. The buying, selling, and prices for houses.
1.) stop interfering in the price of capital. Let interest rates find their own level, or even possibly help them to raise above a free market level.
What would 15%+ interest rates do to the housing market for instance?
Many defaults, less borrowers, and less buyers. Sale prices would have to fall.
2.) Put a capital gains tax on real estate.
3.) Put a sliding scale tax on subsequent house purchases.
eg. 0% for the first house, 20% for the second house owned, and rising to 100% by the time you buy a 5th. So for your 5th house that you buy at $200,000 you also pay another $200,000 to the tax dept.
Do you reckon that might put a chill on house buying?
4.) rental properties, must be up to a pre-determined/legislated standard. ie, in the top 20% of building stock in the country, for insulation, heating efficiency, utilities supply, standard of construction, earthquake safety, etc. If the house rented out doesn’t comply, then the tenant can sue and take the house, and the government can fine the owner and confiscate the house.
Also, a tenanted property can only be a tenanted property. For as long as the tenant wishes to stay, the landlord cannot throw them out. if the landlord wished to sell, they could only sell to another landlord who would run the property as a rental – and the sitting tenant would retain tenancy (as I understand is done in Germany).
the current situation where a landlord can and does throw out tenants at 3-4 weeks notice would be gone.
I am not asking if you LIKE the ideas here. If you are currently a property owner I would expect you to hate them. Afterall you have a vested pecuniary interest. You will not be a disinterested spectator. It would be a direct assault on your wealth. People tend to get real sensitive and picky about that.
However, consider if what I have suggested WOULD collapse the housing market and prices?
If you don’t think that would, then consider this:
5.) No foreign ownership of residential housing.
I was interested to notice recently several news items purporting that foreign ownership was such a small part of the market and problem as to be irrelevant. Either they are fools, or they are liars.
Economics 101 would teach you that prices are set by the marginal buyers. The buyers at the margins. The last 5% or so. That is what determines surplus or shortage.
So if foreign buyers make up 5-8 percent of purchasers, then they are setting the prices.
And if prices are rising – it IS because of those foreign buyers who can and are outbidding the locals.
Those people people denying it are scoundrels and liars – and should be publicly flogged.
Implement all these recommendations, and see how quick people bail out of real-estate. The only reason they were ever in it was because of the money. Take away the money and there is no reason to be in this area – other than to buy a house for yourself to live in.
The next issue is the cost of housing. It is outrageous. And it is all a complicated interrelated issue.
But if there is huge amounts of housing flooding back onto the market, then the prices will drop hugely, and many people will be able to buy their own place.
Many still will not, because quite frankly, all the distortion introduced into the market have produced housing that doesn’t actually match what people need. It matched what will make the biggest profit. ie. larger three and four bedroom houses. Not one and two bedroom houses.
Also, builders and developers have inflated the whole building cost structure as well. Let alone issues of building techniques and materials.
Housing currently is ridiculous. If you are to demolish a standard house now, there is almost ZERO economically recoverable materials. The proof of that can be found in Christchurch right now, where they are simply bulldozing near-new homes and trucking all the debris to a landfill site without any attempt at recycling. It simply isn’t cost effective. And there has never been any incentive to design and build in a modular recoverable sustainable way.
It is entirely possible to do so, but the incentives are just not there.
Another major problem we are looking at, regardless of whether we implement my policy ideas or not, and my ideas would certainly in the first instance make it a huge problem, is and would be an immediate enormous shortage of low income housing. If only because a lot of rental accommodation would be forced off the rental market as substandard. The GFC will take us there regardless, and collapsing the housing market deliberately, will as well.
The only solution would be to urgently and rapidly build and provide government supplied accommodation. It would have to be a huge industry, from next to nothing, almost overnight.
But actually – not from nothing… the basics exist already.
If you are really interested in me explaining why this is the solution I can babble on for ages.
But quite frankly, the merits are self evident.
The only issue isn’t whether it would work, but whether people would like it.
Try being homeless for a little while and see how quickly it seems like a great idea.
And better – it would be cheap.
And the way I see it, that is going to be the abiding issue for our age and the future.
It is not intended to be stylish (although actually it can be). Its not even necessarily intended to be long lived.
It is intended to meet a need – and be easy to build, site and manage.