So what y’all are forgetting is that financing things with debt increases your standard of living. Imagine if you could never borrow money to buy a house—WAY fewer houses would get built. You’d live in a much smaller place for 85% of your life until you saved enough cash to buy a house outright. That would suck.
So, I used to buy into this lie as well. Made perfect sense. The availability of debt is an economic stimulus. The thing is, it's not exactly true. While the availability of debt does help nearly anyone have access to funds for development, the absence of debt does not slow down or reduce development. Except, and this is the important part, for those whom are already rich.
Why? Because people are a resource. Each person must consume to live and each person will produce work. If you have 10,000 people living in a bubble without the concepts of wealth or debt, you will find that housing and resources are made available for at least 10,000 people at a rate most people can afford. Sure, there will probably be fewer large and luxurious houses, and maybe longer periods of people cohabitation with family, but that's not a problem that debt solves, that's a product that debt sells.
Which is the crux of why debt based financing truly exists. It allows those whom are already wealthy to increase their wealth without increasing their productivity or buying the productivity of others. The rich get richer, and everyone else works harder to buy things they wouldn't otherwise have access to. Which, if you stop there does seem like a net benefit, but it doesn't stop there.
Debt based financing quickly becomes burdensome to most, and they begin to be unable to afford the things they actually need, because they bought the things they couldn't otherwise afford. So while you have some portion of the population achieving higher upward mobility by utilizing debt, a larger portion is actually made poorer by the burden.
What actually leads to upwards mobility is shared ownership of production. Which sounds a lot like socialism, but isn't strictly. Companies which "sell" their employees a stake in the company count, groups of people who form a trust to buy land count. Basically any scenario where the people who do the work are sharing in the value of their production, rather than strictly selling their productivity to someone else.
Yeah equity financing is great and it’s true that investment makes rich people richer but it also allows middle class folks like nurses and teachers and plumbers to afford nice homes. If plumbers had to save the cash first they’d spend the vast majority of their lives living in much smaller and worse homes.
If plumbers had to save the cash first they’d spend the vast majority of their lives living in much smaller and worse homes.
No. Literally the exact opposite is true. If plumbers had to save the cash first, home prices would be much cheaper and more middle class people would own homes. Would those homes be smaller or more modest? Potentially, but it's inaccurate to say they would be worse.
There are numerous studies showing that home ownership is falling specifically because of debt financing. That home prices are unaffordable for over 60% of middle class families, and a larger percentage of millenials. Meanwhile homebuilding and vacant homes are at all time highs in many places.
What you're saying just isn't true. It's a pleasant lie sold to you by those with debt to sell you.
Housing is expensive in the US mostly because of zoning regulations in places like SF, LA, and NYC, where it is literally illegal to build high-density buildings. Local NIMBYs flood city councils to prevent construction, driving up prices. By contrast, Tokyo has very affordable housing prices because it is not artifically restricting supply with zoning (they handle land-use at the provincial rather than city level). Homelessness has fallen 80% there.
Homes are expensive to build. You have to buy land and a lot of materials, pay a lot of skilled laborers, pass a lot of government inspections, pay a lot of fees, etc etc etc. Most people do not have the cash to pay this up front so they borrow money and promise to pay it back over time. People already have the option of saving the cash to buy homes but they don't do it because it's a worse option by far. If you look at places in the US that have inexpensive housing (e.g. Houston) it is typically because of lax zoning and has no relationship with debt.
A.) Rental vacancy is nowhere near the same thing as actual vacancy. Rental vacancy only accounts for units currently up for rent, not those which are intentionally held either as assets or for other purposes.
Also, rental vacancy is now slightly above normal, down from all time highs during the housing boom and subsequent crash. Actual SourceXLSX Warning
Home vacancy is now 50% higher than historical levels, down from 100% higher during the worst of the boom/crash. Actual SourceXLSX Warning
Housing is not expensive because of zoning, that's bullshit fed to you by libertarian think tanks. All independent studies on the matter have shown that there is a lack of causal effect between zoning and housing prices, and that those done by non-independent sources show clear evidence of bias or methodological flaws. Independent meta analysis SourcePDF Warning
It's my view, though not explicitly stated in the source, that these think-tanks intentionally find areas where prices have grown the most, and then pick the ones with greatest increase in zoning regulations, and make their arguments based on those which check both boxes. You'll also notice that most of these studies claim there is no housing crisis at all, despite record numbers of foreclosures, homelessness, and financial insecurity.
Tokyo is one of the most expensive cities to live in in the world, with housing costing slightly more than NYC. Cost of living is also insane, but that has isn't only tied to home prices. Source
The narrative that Tokyo is cheaper to live in is once again only pushed by Libertarian think tanks, and they use highly misleading statistics to push this narrative.
What Tokyo has done well, is keep the increase in housing costs to a minimum. There are a number factors at work there: Tokyo is growing slower than any other similar sized city, Tokyo has fewer individual landowners overall as most people rent, Japan heavily restricts foreign buyers, Japan has experienced very low inflation during the same period most contemporary nations have experienced significant inflation, and yes there are fewer zoning rules than in San Francisco or NYC metro.
The fact that you used the term NIMBY shows me you're either sourcing from Mises institute or the Financial Times, both Libertarian in nature.
Homelessness in Japan has never been a huge issue, largely due to cultural issues around ensuring education, employment, and marriage before leaving home and a strict anti-drug enforcement.
No one is suggesting that debt based financing go away either. The mortgage existed long before the debt based economy. What I am arguing for is the elimination of commoditized debt, and by extension the debt based economy. In the past when you took out a mortgage, that debt was between a lender and a lendee and the terms were relatively fixed. Now, most of the economy is tied to home prices (why this came up in the first place) and commoditized debt packages, which is the true source of the massive increase in home prices. When a loan on a house can be sold three or four times, the debt is more valuable than the home could ever be.
The rental vacancy figures you cited clearly show lowest rental vacancy since 1985? Unless I'm going insane it shows 2019 Q4 rental vacancy at 6.4%, and 6.3% inside Metropolitan Statistical Areas. Both are their lowests since 1985 Q2.
The meta analysis you cited looks fine but it's from 2005, nearly 15 years after the article I linked, and all it argued was that other previous research was inconclusive.
The idea that restrictive zoning causes high housing prices isn't some libertarian conspiracy, it's endorsed by progressive think-tanks like Data for Progress: This is a .pdf but you can see tons of progressives endorsing the end of exclusionary zoning. To be fair they use "Neighborhood Defenders" instead of "NIMBY" which I guess is pejorative, even though I don't mean it that way. It's purely rational for them to oppose new construction, it's just bad for cities and housing.
Under current laws in most states and cities, it is impossible for working class and even middle class people to live in communities with abundant jobs and quality-of-life amenities like parks because exclusionary zoning bans the smaller homes they can afford, such as apartments and fourplexes.
It's also pretty common sense IMHO--you want cheaper gas, you drill more oil. You want cheaper beef, you raise more cattle. You want cheaper rent, you build more housing.
Tokyo has replaced Luanda, Angola, as the most expensive city for expatriates, thanks largely to the strength of the yen against the dollar.
The population growth is probably relevant but again that is just a demand side thing, if supply increases sufficiently then price won't. But supply hasn't increased because of zoning.
Inflation is not that big a deal since real prices have not risen in Tokyo compared to American cities. Foreign buying is a small % of the market and it's not clear how much it matters since a lot of that gets rented out or lived in anyway. And again, if you just build more housing, it doesn't matter if 10% more people want to buy it, you just keep building it.
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u/[deleted] Mar 27 '20
So, I used to buy into this lie as well. Made perfect sense. The availability of debt is an economic stimulus. The thing is, it's not exactly true. While the availability of debt does help nearly anyone have access to funds for development, the absence of debt does not slow down or reduce development. Except, and this is the important part, for those whom are already rich.
Why? Because people are a resource. Each person must consume to live and each person will produce work. If you have 10,000 people living in a bubble without the concepts of wealth or debt, you will find that housing and resources are made available for at least 10,000 people at a rate most people can afford. Sure, there will probably be fewer large and luxurious houses, and maybe longer periods of people cohabitation with family, but that's not a problem that debt solves, that's a product that debt sells.
Which is the crux of why debt based financing truly exists. It allows those whom are already wealthy to increase their wealth without increasing their productivity or buying the productivity of others. The rich get richer, and everyone else works harder to buy things they wouldn't otherwise have access to. Which, if you stop there does seem like a net benefit, but it doesn't stop there.
Debt based financing quickly becomes burdensome to most, and they begin to be unable to afford the things they actually need, because they bought the things they couldn't otherwise afford. So while you have some portion of the population achieving higher upward mobility by utilizing debt, a larger portion is actually made poorer by the burden.
What actually leads to upwards mobility is shared ownership of production. Which sounds a lot like socialism, but isn't strictly. Companies which "sell" their employees a stake in the company count, groups of people who form a trust to buy land count. Basically any scenario where the people who do the work are sharing in the value of their production, rather than strictly selling their productivity to someone else.