Real Estate as Substitute for Gold
Posted: February 14, 2013 at 4:25 pm | By: Miriam Rasch |
By Adrian Lucas
Th Guardian article Tehran landlords and tenants lock horns in heat of property boom highlights what I consider to be the financial nemesis of our time: capital (=savings+speculation) pouring into property buying, creating dysfunctional property markets throughout the world. The policies to control property speculation are failing (in many countries tax policies perversely incentivize property speculation), with the consequence that, throughout the world, more and more people are spending higher and higher percentages of their income on rent/mortgage payments. No wonder there is no economic growth: how can there be growth if workers have to adjust to the rent/mortgage payment increases by decreasing their discretionary spending?
In the 1960s a working man could pay the rent for a family of 6 persons, and the mother didn't have to work. Increasingly rent/mortgage payments are only payable if 2 of the unit dwellers are breadwinners: and if one loses a job, things immediately get tight. And precisely because there are so many privileged double-income couples (she works for a bank, he works for a university), and triple-income WGs (sugar-daddy students of wealthy), plus wealthy people who can afford the rent/mortgage payments for pied-à-terres in each of 3-6 locations, the dysfunctionality is not coming to an end. And if real-estate prices would ever fall (because policies against speculation eventually bite), then any fall in prices is liable to set off a 2007 crisis: which is precisely why money goes into property: investors know that a policy change would wreck the economy, and which politician would risk that? Hence the famous remarks of the Citigroup President 'we're still dancing': no politician wants to turn off the music. Bernanke is doing everything possible to get US real estate prices to start moving upwards again. Likewise for Britain. Read the rest of this entry »












