June 17, 2005

• Almost no savings and people have financed their spending with equity loans against their homes. At variable rates. As long as we don't see early inflation indicators (and we've seen a few, but also mixed signals), and as long as the Asian banks cooperate, then things will stay as they are. If we start seeing inflation, the Fed will be forced to start really raising rates and that may trigger a collapse of the housing bubble. For an analysis of the Asian banks problem, see other sites, including what the Economist has written. Also, check Financial Times. I'm not an economist. Two years ago I thought we were seeing a housing bubble and all the good economists I trust said that a housing bubble was very unlikely, almost impossible. I asked Brad DeLong severl times in his comments threads to explain why he was sure we weren't seeing a housing bubble and why there couldn't be a housing bubble. I didn't ever get an answer from him, and from others I either didn't understand it or have completely forgotten it. (Or both.) However, now these same economists are talking about a housing bubble. They're worrying about it. That doesn't mean that I was smart two years ago for thinking there's a housing bubble, it just means that I'm really confused now. But, for obvious reasons, now I really think there's a housing bubble. I think financing against equity has kept consumer spending afloat and that once that isn't available, people will feel the lack of wage increases (which we haven't seen) coupled with the higher unemployment relative to the boom times much more than they have. Then the bubble will not only pop, but there'll be considerable pessimism about the economy. That'll be good, in a way, because an inflationary scenario under these conditions would be worse. I don't think (from what I understand) that a deflationary scenario is considered likely anymore. A general principle about bubbles is that the earlier they pop, the better. But the psychology of bubbles is exactly against that. Many people are still mad at Greenspan for popping the Internet bubble when, in mine and many other people's opinions, he was a good deal late in doing so.
• Being in the market both as an acquirer/developer and as a personal buyer in Southern California where the bubble is biggest, most don't predict a burst for another five years or so. Arizona and Colorado will be the first to go, then SoCal. Either way a bubble only exists when those not in the know, who think they know, play the game. Hey if you're willing to spend $200sqft then by all means go for it, but you're gonna be eating that dirt in a few years...
• Certain economists have been pointing out that the housing bubble, while worrisome, is only a symptom. The primary worry is the low interest rates of short and long term US government bonds that drive the low interest rates supporting the housing bubble. Many argue that the purchasing of US bonds by foreign government is in many senses artificial and unbacked by any true strength of US government bonds. That demand for US T-bills could slump at any time as a result, leading inevitably to higher interest rates, inflation spikes, a nose dive in the economy, and millions of home owners holding houses whose monthly payments they suddenly cannot afford and huge credit card debts financed through mortgage borrowing. The cautious consensus seems to be that it's not time to panic, because there's no way of knowing when US T-bills will hit the wall. It may be years still, and proper international monetary coordination might still avert disaster. However, the worried ones are also advising to save every dollar you can, get rid of any debt ASAP, and make damn sure you don't pick up any huge mortgages right now. British and Australian prices have stalled mainly because first-time buyers have been priced out of the market and demand from buy-to-let investors has slumped. Well duh. Real wages in America have been stagnating (or slumping) for years now for every income class except the filthy rich. If wages don't go up, new buyers can't afford higher housing prices. If anyone who can scrape together 5% down and enough for interest only monthly payments buys a house, there's very few left interested in renting. And their income's been stagnating so they can't pay much. It's looking like getting out of this without some pain will be very, very difficult. On the upside, if you have some cash in the bank, it could be a buyers market in real estate in not too long.
• I posted on the similar thread over at Metafilter, where I pointed out that in an inflationary scenario, holding a fixed-rate mortgage is a good thing. In fact, you win big, assuming you can hold a job through the recession. Kmellis, you sound well informed about these issues. What's the chance of a round of inflation like Japan's, where the gov't encourages inflation which enables it to "grow out of the deficit". From the website linked in the FPP, Julian Robertson predicts trouble ahead (May 2005): He believes the U.S. consumer is all but exhausted (see yesterday's comments on the same subject) , that the effort will be made to "inflate our way out." He notes a soft landing is possible, but ala Japan, it could involve years of flat or no growth. " I don't feel comfortable asking the curmudgeons on the blue to help cure my ignorance, so can you tell me why you say "an inflationary scenario under these conditions would be worse".
• now these same economists are talking about a housing bubble...That doesn't mean that I was smart two years ago...it just means that I'm really confused now. Two years ago I suspect that no one was willing to officially call a housing bubble because they all expected the US government to start getting it's financial house in order. They did not expect both the administration and the legislative branch to actually grow the deficit, while still attempting to cut taxes, bleed money in Iraq like a stuck pig, and have Bush actually stand up and say the T-bills were worthless. Now almost everyone in the academic financial community seems to have given up any presumption that the current US government will start taking finances seriously. That looks very, very bad for US T-bill rates, and means the housing surge becomes a bubble. I'm not an economist either, and while I think they're great information sources, you should never trust what they say. There's simply too much mass psychology involved to predict with certainty, and too many of them seem to overlook psychological factors. What's the chance of a round of inflation like Japan's, where the gov't encourages inflation which enables it to "grow out of the deficit" Sorry to jump in here, but I think the key difference is that Japan has a trade surplus, while the US has a huge trade deficit. People/countries aren't interested in buying enough of what America's selling. Even with a surplus, Japan has been limping for years now.
• "Kmellis, you sound well informed about these issues." Not enough to answer your question. I'm in that very dangerous territory that Plato called "true opinion"--I "know" what is true, but I don't really comprehend it. I don't know it for the right reasons. Being able to easily explain something to the ignorant is always a good test of whether this is the case or not. In this context, I fail that test. But so do a lot of people that confidently lecture on this topic. Nal, to me, seems like a trustworthy source. Perhaps you could get him to say more?
• Sorry, we're reaching my limits here. kmellis, I suspect we are at about the same level, though covering some different areas of the subject.
• So...is this a good thing for those of us who don't own houses, and will be looking to buy in say...a decade or so? Actually, my first thoughts were, good thing British housing prices are going down, but it won't lower the insane rent (by North American standards, and being paid out of funding in Canadian dollars).
• So...is this a good thing for those of us who don't own houses, and will be looking to buy in say...a decade or so Whatever you do, don't follow recent mortgage trends. I had no idea until a few days ago that many recent mortgages are not only variable rate, but interest only, making the payments extra double dangerously deceptive! Ay carumba, what kind of insane person signs a mortgage like that?!

• If wages don't go up, new buyers can't afford higher housing prices.

  We can see this very clearly in New Zealand. My house was valued at ~$100k in 1986, was at $350k by the time I bought it in 2002, and was valued at $450k in 2004. I imagine it's over $500k now; peoples' incomes have not, on average, quintupled in that time period, and my house is, if anything, a low riser compared to housing some parts of Wellington and Auckland. Prices have partly been fueled by immigration, and partly by well-off boomers buying multiple houses as a retirement fund - pay the mortgage on the rent, gain on the capital value - but it's only sustainable for so long. Amongst the under 40s, home ownership rates are plummetting compared to historical trends, and many of the small-time half-arsed "property investors" (the aforementioned boomers) are whining that they can't rack rents high enough to pay their mortgages (and, incidentally, discovering the rental market isn't as easy as buying a house and watching the money roll in). There are massive shortages of affordable housing, but above the $400k-$500k threshold it's pretty much a buyer's market already. All it will take is a drop in immigration, a jump in interest rates, and/or the first waves of 40+ investors retiring (or becoming disillusioned with the hard reality of being a landlord) and wanting to cash up to stall prices. If there are enough people over-leveraged, it'll become a good time to tour the mortgagee sales with cash in hand.
• Nal: Just wait to see howfucked the banking industry will be in Aussie. These days most of the high-street banks are offering self-assessed 95%-100% loans, no credit checks, no effort to verify information, on the assumption that property prices will always let them recover the bad debts. I'd laugh, but since they own the New Zealand banks lock, stock, and barrel, the fallout will doubtless be a world of pain, especially once New Zealand banking regs are "harmonised" (ie, New Zealand law suborns itself to Australian).

• There's simply too much mass psychology involved to predict with certainty, and too many of them seem to overlook psychological factors.

  Behold the myth of the rational actor.
• I've been reading about these negative amortization loans, which are currently huge in California, and they really scare me. They seem to be a bet by the people who sign on for them that their income will rise significantly. Also: The "Irrational Exuberance" guy's claim that real housing costs have been basically flat since the 1800s smelled a little off to me. My thinking was that a schoolteacher or a cop used to be able to buy a home in San Francisco, where I live, but that is emphatically not the case in recent years. I'd argue that in judging a country's financial health, it's not just the average home price that's important to note -- it's the percentage of folks who can afford to buy that indicates the financial health of a country. Nal, your point about the stagnating income of the middle class and below is spot-on. One thing I bet will happen, at least in America, is that if there's a housing price crash, lenders are going to go running to the government to demand a bail-out. When it's their own goddamn fault that they're making these ridiculous loans.
• A few observations from someone who does not purport to be anything of an expert in these matters: I live in Arizona, so I'm seeing some of the hotter expansion. I also work in a newspaper advertising department, and I'm involved with the real estate ads. Working on these ads week after week, I notice a few things - 1.) As you might expect, the bottom end of the market is by far the most competitive. It is extremely rare we see a house for under $100k anymore, and when we do, it's a shoebox condo in a questionable neighborhood. The average home price here is somewhere around $230k, and we're supposed to be known for our low cost of living. Compared to California, it still is cheap to live here, but when you've lived here all of your life, it's hard to deal with the sudden increase in costs. 2.) An affordable option used to be a mobile home on an acre or so, but even now, those are going for $120k or more. When you consider that mobile homes don't appreciate, but instead depreciate, this is setting a homebuyer up for disaster. The only thing of real worth is the land the home is sitting on, and when the owner has to sell in a few years, there is a real risk of not being able to cover the outstanding amount on the loan. 3.) The phenomenon of investors buying a large percentage of available homes is well known. Estimates for this area are a quarter to a third of all house sales here are to investors. When you take that much of the supply out of the market, it's going to drive up prices, and fast. Lately we have seen an upswing in ads for property management companies trying to rent out houses, most of them newly built. It doesn't look like they're having much success attracting tenants, judging from how many homes I've seem advertised for months on end. This leads me to think one of two things - either a.) the investors will sell en masse when the bubble pops, and the extra supply will hasten the housing market collapse or b.) higher interest rates may make renting these houses more attractive in the future if rents can stay fairly stable. (Again, I don't claim to be an expert; these are just my thoughts. Don't hesitate to comment on what I got right or wrong here if it's really egregious.) One local builder has pledged to no longer sell to investors, and that's passing for a great PR move. Even if the market cools off, new houses will still get more expensive, because local governments are getting serious about impact fees. And there's no telling what higher interest rates are going to do to the market, but whatever happens, it's not gonna be good for a lot of people. Fortunately for us, while we have a little more debt than I'd like, it's not overwhelming, and we'd be able to cover even if we sold our house for what we paid orignally. But I know a lot of people with second mortgages and five figures or more of other debt, and things are looking scary for them.
• Let's face it, there's some weird $%@! going on. In the city where I've been recently, the focus has been on condos. Condo buildings going up all over the place the last few years, and for the last 18 months there's been all sorts of talk from the real estate pros about how there isn't enough real demand. How a lot of the condos that sold a couple years ago were to investors, not real occupants, who now can't find renters. So who's going to buy the most recent builds, and when are the investors going to start panic selling? There were a lot of sales offices sitting around in non-ideal locations, trying to scrape together enough buyers to break ground. Then about 6 months ago, just when the ugly murmurs really started to break through, all of a sudden it seemed like all of these stalled developments were finally building. One would think that the builders were panicing and trying to throw up their building before the market crashed...except developments are bank financed based on pre-sales that usually have to be over 80%, IIRC. So who suddenly bought into all those stalled condo developments?
• My thinking was that a schoolteacher or a cop used to be able to buy a home in San Francisco, where I live, but that is emphatically not the case in recent years. But not everywhere is San Francisco. Prices have gone nuts in California, Massachussetts, metro DC, and some other areas, and the bug seems to have spread to Florida now. At the same time, prices have been almost flat for 10+ years in places like Charlotte, Buffalo, Cleveland, Cincinnati, Columbia, Des Moines, Detroit, El Paso, Greensboro, Indianapolis, Jackson, Birmingham, Lansing, Memphis, Nashville, Oklahoma City, Omaha, Pittsburgh, Rochester, San Antonio, Springfield IL, Syracuse, Saint Louis... These are, to be sure, not places that the aspiring young hipster would likely be thrilled to move to, but they add up to a serious chunk of population, and some of them are real no-shit metro areas, and some of them have been growing substantially in population. As near as I can tell, the numbers I found were nominal dollars, not real dollars, so many of these cities have declining real house prices, or almost exactly flat real house prices. Even places like D/FW, New Orleans, Philadelphia, and Raleigh/Durham haven't seen a lot of growth over the past 10 years, and the population growth in D/FW and RDU has been extensive since 1995. There are also lots of other cities where prices have gone up a fair bit, percentage-wise, in the past 10 years but the median price remains comfortably under $200K -- places where the median price may have doubled in ten years, but only to $150K. My point being that you can't reason from where you live, assuming that it's holding true everywhere.
• DFW growth is in the suburbs: Plano and the like. Those guys are the ones with the overleveraging problem: giant mortgage, limited income. Houston's the same way, although there are some hot inner-Loop neighborhoods that are overleveraged too. The Heights, where we were, has cooled, but I wouldn't want to buy in the new midtown development along the light rail or in Montrose. I remember the real estate bust after the oil bust of the 80s (Lord, just give us one more oil boom; I promise we won't piss this one away!). I can already see some of the signs of overbuilding in the condo and townhome market. Since that's probably what I want to buy when I go home to Houston, I can see the good (cheap) and bad (neighborhoods will go slum) of the coming real estate bust. For a historian's perspective, I recommend David Hackett Fisher's The Great Wave, which isn't about modern finance as much as historical patterns of prices and wages. He's properly reticent about drawing predictive conclusions (unlike Strauss & Howe), but if you do the math in your head, you can draw your own conclusions about what the signs we're seeing mean. It looks like we're finishing up a time of prosperity and heading into a time of uncertainty. On the other hand, he's looking at approximately 80-year cycles, so what that means if you want to buy a house next year isn't clear. What my financial adviser told me last year when I told him I was selling my house and moving to New Jersey was that it was a good time to be out of real estate. He said I would pay a higher interest rate on the next one but the price would be lower. He's an investments guy, so not a real estate guru, but it was clear he thought we were in a bubble that was about to burst, or at least let down, and from his other comments that he thinks we're going into a rough period financially, in part for the reasons Nal is citing upthread.
• Hedge.
• I'm looking forward to the bubble bursting. Then I might be able to afford a decent home. Bring it on!
• Hey! That's my plan! I've got houses picked out and everything!
• Wow, great discussion. One thing to throw into the mix: What makes this bubble especially dangerous IMO are the linkages. There's huge mortgage debt and at the same time there's trouble brewing over at Fannie Mae and Freddie Mac. The two companies hold $2 trillion(!) of mortgages and Greenspan has gone on record saying these guys could jeopardize the financial system. Then underneath it all is the ocean of derivatives, most of it unregulated. If the bubble pops rather than deflates gradually, I can see quite a few banks or hedge funds becoming the LTCMs of the 21st century. Buffett once said that "only when the tide goes out, do you see who's been swimming naked". Given the big tide, we're going to see a lot of embarrassed naked folks.
• Being able to easily explain something to the ignorant is always a good test of whether this is the case or not. In this context, I fail that test. But so do a lot of people that confidently lecture on this topic Kmellis, well put. Economists rush in where monkeys fear to tread?
• Also: The "Irrational Exuberance" guy's claim that real housing costs have been basically flat since the 1800s smelled a little off to me. Me too, though FWIW, a few months back there was a MeFi(? or maybe here) thread featuring scans of the homes you could buy from the Sears catalog (most from the 19-teens and twenties). Someone looked up median income for the equivalent time period and the home costs were a greater percentage of income then than they are now. Not very scientific I know (and the "average" tends to minimize crazy hotspots like mine - i.e. Boston) but it was eye-opening. I'm looking forward to the bubble bursting. Then I might be able to afford a decent home. Keep in mind when things go kablooey, if the disruption is severe enough to drastically impact home prices, the odds of you keeping your job may not be all that good. That's what drove me to buy in '03. If everything's going to hell, I might as well enjoy a tax break 'til then...
• These are, to be sure, not places that the aspiring young hipster would likely be thrilled to move to Xeny, I live in Lansing - does that mean I'm not hip? Hell, I expect housing prices in Lansing to go down, given that the local GM plant just closed. You can't expect people to buy houses in a community that just lost one of its largest employers. If not for the state government and university, there'd be nothing here. Anyway, I'm with Skrik on this one. I just want this bubble to burst before I'm in the market for my own place. I'd be pretty pissed if I bought my first home just before property values went into the toilet.
• Fear of an economic & housing bubble drove us to buy (cash) rural land AND materials for a two-story house, which I'm in the middle of building. We're laying low until the bust. Fuck $200K -- we're mortgage-free and I'm getting a good workout to boot. Wonder how many other people are doing this.
• But not everywhere is San Francisco. Name a safe, middle-class neighborhood in San Francisco where a cop or schoolteacher's salary could afford to buy today.
• Oops. "Not everywhere IS San Francisco." Yes. You're right. And your point about some places being more affordable than others is well taken. But I purposely used the cop and schoolteacher examples. They're integral to their communities, and communities suffer when people in integral-to-the-community roles can't afford to live in those communities they're integral to.
• In 1900, an average household's wages for one year could buy the average house. Today, it would take an average household 3 or 4 years' wages to buy an average house even in a relatively non-inflated area. Keeping in mind that average household income used to mean ONE person's income, and now it means TWO, today's housing costs roughly 6-8 times the man-years more than it did a century ago. This is a HUGE increase.
• In 1900, an average household's wages for one year could buy the average house. Today, it would take an average household 3 or 4 years' wages to buy an average house even in a relatively non-inflated area. Modern houses and houses built in 1900 aren't comparable. In 1900, the average house didn't even have electricity or indoor plumbing. It would cost a whole lot less to buy the average house now if the average house was a small 2- or 3-bedroom with no bathroom, no electric service, no water service to the kitchen, no insulation, no fireproofing, no air-conditioning, no garage, and so on. It's like when people note that in the 40s or 50s, a family could get by with just one breadwinner. You still can, in most of the US anyway, if you don't mind living a 40s or 50s lifestyle. Small house with one bathroom and kids sharing rooms, one car (and a much worse car), no a/c, more limited vacations and dining out, careful management of food budgets, etc.
• In Britain in 1900, you were lucky if you had 4 rooms, 2 up 2 down, no bathroom. Many working class even rented out the front room and lived in less. Of course, in Britain now, you're lucky if you have 4 rooms, 2 up 2 down, and if the bathroom hasn't chopped the hell out of one of the rooms. At least if you are on a student's funding :) (Yes, my fiance and his friend just went househunting - it wasn't easy.)
• (That's for three students sharing - for one student, it would be utter luxury.)
• Having said that, jb, Cambridge is full of houses built for professors in the late 19th century, now being lived in by millionaires or divided into bedsits, and houses built for servants in the mid-19th century now being lived in by professors.
• My parents still live in the DFW suburb I grew up in, and their house has about doubled in value since we bought it in 1985. My parents were only able to buy that house when they did because of a government subsidized mortgage. In those days, the government offered a limited number of these to working class and lower middle class families, hoping to jump start real estate during the oil bust. Even though their house has risen in value, they have still figured out that if they sold it for that value, and then paid off what's left of the mortgage, they would not qualify to buy another house. (They wanted to buy my late grandparents' house a block away.) Granted, part of the reason was that my dad was off work for much of last year and this year with cancer, which made his income about half of what it usually is. Still, it's sad when you are a homeowner of a nice house and you can't afford to sell it and buy another house of equal value.
• Great. I just bought my first house in Elk Grove, CA. 3 bed, 2 bath 1100sqft...$370,000. Anyone want to bid to buy after the crash? Do I hear $145,000?
• I've always wondered what it sounds like when a financial bubble bursts. I imagine it to kinda go like KAHBUSSshhhchlup.
• Grover you're doing well compared to my buddy who bought a house with the same square footage for $560,000. This is about 2-3 hours north of San Fran, I think.
• If prices are so insane, why do people want to buy instead of renting? I'm asking, because I know that I would buy before renting, maybe out of some visceral desire to be away from landlords, but at the same time, the prices for houses are inconceivable to me. I actually remember the day in math class when I realised the monthly morgage on a $250,000 house was a much money as my family had per month total (and there went my childish dreams of a backyard). I understand the capitol gain, and all - but when you are looking at rents of several hundred a month, and morgages of a few thousand a month, with the strong potential your house could go down in value - what makes us all (including me) still want that house?
• what makes us all (including me) still want that house? Because it's yours. No landlord can give you thirty days' notice to pack up and leave. If you have children, you don't have to worry about the lease running out and then uprooting everyone from school, friends, and activities because you can't find another place nearby that you can afford. A friend of mine also commented that renting is like throwing money into a black hole; at the end of the day, you don't have anything to show for it. A house can depreciate, possibly alot, if the bubble does burst; but it'll still be there, and even if you can only sell if for a tenth of what you paid for it, it's still worth something.
• If prices are so insane, why do people want to buy instead of renting? I rent, and the amount I pay each month is the same as - or, more likely, more than - I would pay in mortgage repayments, because in England the house prices have been driven up by people who buy a second (and third and...) property to let out, and by definition they charge a level of rent which covers their mortgage repayments (as well as presumably the estatge agents handling fees, etc). I can't qualify for a mortgage (the flat I live in would cost 9 times my current wage), but I have to pay the same out each month for very little return (pretty much the only benefit is the ability to move places - and jobs - easier). House prices in Britain are pretty obscene, really, though. Especially in the south-east, where I live, unfortunately
• I hate people buying two houses, just to rent one out. It's such a greedy thing. These aren't luxury goods - they are homes, a human necessity. It's like buying up grain in a starving country just to push the price higher. Wait...people used to do that. Nevermind, people are evil.
• Used to?
• You know, I can't even think of one example of that. Mark that down as an example of typical knee-jerk bleeding-heart liberalism. Hippy fuck.
• It's such a greedy thing. Their orta be a law.
• BBF - I was specifically thinking of 16th/17th century engrossers in England (mass starvation or subsistence crises in southern England ended by the end of the 17th cent) - though there were also English merchants buying up grain in India in the middle of the 1870s and 1890s famines. But that's about when my history stops.
• Nah, I was talking about when I said used to, as if they currently do, but I don't know if they do or not. I'm just being a tool. Ignore me.
• If prices are so insane, why do people want to buy instead of renting? In a bubble, people irrationally expect prices to continue to rise indefinitely. The same psychological forces are at work here as in the tech bubble of 2000. They are: 1. Recency: People weigh recent events more heavily than events in the distant past. People focus on the price trends for the last five years and forget that prices do fall. Polls of recent house buyers show that many believe that 20% annual price increases to be the norm. 2. Anchoring: This is a funny one. Ask one group of people: "What is the population of Turkey? Is it more than 20 million or less?". Ask another group of people the same thing but change it by using the number 100 million. The first group's answers will cluster around the 20 million figure, the second group's answers will cluster around the 100 million figure. Our minds tend to fixate on numbers regardless of whether they are meaningful or not. When all the houses in a neighbourhood are selling for $500K, many people don't even question whether it makes sense or not. 3. Social herding. The most powerful force of the lot. Nothing's more painful than reading about high real estate prices and realizing you're missing out. Meanwhile the dumbass neighbour down the street has made $100K while you've been waiting for prices to come down.
• I hate people buying two houses, just to rent one out. It's such a greedy thing. Suppose we make it illegal to own two houses? Do you see anything wrong with that?
• I didn't say it should be illegal. I said I hate it and I think it's greedy. I also think the same thing about really large house lots, and people who consume a great deal and don't give to charity. There are good reasons for some people to own two homes - people who work in two places for instance. And it's not like most summer homes or cottages are suitable for yearround habitation. But still, I do find owning a summer house as nice as a regular house to be greedy. It's probably a class bias thing - when someone's summer house is bigger and nicer than the regular house (of course rented) which my family works damn hard for, I'm a little resentful.
• I detect a slight discomfort with the notion of Capital.
• Only the same discomfort Adam Smith himself had, goetter. Just because you recognise what Smith calls the moral problem of capitalism doesn' tmake you Stalin.
• No, rodger. That's not it by a long shot.
• I have a great discomfort with socio-economic inequality.
• Resentment eats the soul.
• I really can't resist putting forth the neoliberal economics answer to jb's objection. Which is, I think, that even if we could all agree on a moral framework in which the sort of thing he describes is "wrong", it's well-nigh inevitable that attempts to directly economically correct for this are ineffectual and sometimes make the problem worse. Also, of course, neoliberal economics would encourage you to put aside your intuitive biases and try and establish a rational framework within which you can more fully and more correctly evaluate the moral character of the situation. I personally find it to be the case that many, perhaps most, people's quick and easy intuitive moral evaluation of economic matters is misleading or even false. Being on the left side of the spectrum, where my concern is concentrated on the plight of the least powerful, I find it maddening to the point of despair that it's often the case that many people's unquestioned and easy intuitions about such matters lead to conclusions and policies that worsen the lives of the most unfortunate, rather than the opposite.
• Mmmm, maybe I'm misreading jb's posts. Seems to me she can separate moral intuitions from policy considerations just fine: I didn't say it should be illegal. I said I hate it and I think it's greedy. I also think the same thing about really large house lots, and people who consume a great deal and don't give to charity. I hate driving in downtown, smoking in public, living in the suburbs and all sorts of stuff. I'm dead against legislations to ban them. Still hate them though. [shakes fists] Also, my intense bias against milk (severe lactose intolerance) makes me hate the entire dairy industry and people who put milk in bread and scrambled eggs.
• Oops, jb, i didn't mean to suggest *you* wanted to make them illegal. I was actually throwing out a genuine question. What if we *did* make it against the law? Or perhaps less harshly what if we raised the capital gains tax on any profits made from property that is not your personal residence?
• Dng wrote: and by definition they charge a level of rent which covers their mortgage repayments (as well as presumably the estatge agents handling fees, etc) This doesn't happen by definition, they charge what the market can bear. So it means that the rental market where you are living is still fairly hot. If the landlord is carrying a mortgage and has trouble finding renters, he *has* to lower rent. Because getting some cash to help with the mortgage is better than nothing.
• StoreyBored - raising the capital gains tax would be a good idea. Also, as housing is a human necessity (rather than simply a voluntary consumption), I think there are good grounds for the government to step in to subsidize housing. It's not always the best - I lived in subsidized housing for 18 years and it could be very dirty and run down, largely from poor maitenance and the concentration of poverty - but it was actually in considerably better condition than market run buildings for people with similar incomes, and for many people it meant that they had halfway decent housing (ie you didn't have families in one bedroom apartments). Currently, however, all subsidized housing in Canada is oriented on the rental market. I think it is true that people care more for what they own than for what they rent - there is a different degree of control and a stake in the property. (When you rent, you can't change the house, or paint it the way you like, or even lay nice carpets, for fear you'll just have to rip them up when you leave). I wonder if the government would ever get into building of houses? I think Habitat for Humanity is an amazing idea. I really should find out how I can volunteer for them, except that I'm leaving the country. If I were looking for a house, I think that is one of the first places I would try, if I qualified - you can learn so many skills too (I currently have no house handy skills - which is partly a legacy of always renting). There are social benefits to providing cheap housing - aside from reducing homelessness (there are many more homeless families than you ever see on the streets, most are in shelters and motels at great expense to the system and stress to themselves) - but it also can mean that wages can be lower. I heard a fascinating radio program once about housing programs in Amsterdam; apparently the Netherlands decided to subsidize housing in order to keep wages low and thus compete better in the European markets. It seems to have been quite sucessful - at the time of the program, homelessness was less of a problem there than elsewhere. (There were still a hard core of homeless people, including the mentally ill and drug addicts, who could not function outside of the support systems, but this seems inevitable.)
• I actually went to one of Habitat's meetings one time. However, I didn't find the one i went to very engaging. Part of it may have been its own success. There were swarms of people all clamouring to help. In the end, I think they had more than enough people to get the job done (which is probably an unusual but nonetheless troubling problem to have) A friend of mine has had better luck and he's enthusiastic about his experience.