Bricks and mortar and plastic | P2P Independent Forum

oldnick

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Bricks and mortar and plastic Apr 7, 2014 7:54:55 GMT via mobile

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Post by oldnick on Apr 7, 2014 7:54:55 GMT

We all spend money on property, and consider it an investment. But the only property that produces income is premises other than the one we live in (lodgers excepted). There can be capital appreciation, and the opportunity to trade down to release it, but our homes are basically dead money - until we're dead.
Does anybody know how much of the 1-2 trillion of private debt is sunk in our homes, earning nothing, there just to outbid another buyer?
Does anybody know how much of that same vast figure is credit card debt that is paid off at the end of the month, in full,
And therefore not a long term burden?
What I'm mulling over is: how much of that pile of debt is 'a good thing' because it's existence generates economic activity, and how much is effectively buried in a hole in the ground and therefore 'a bad thing'.
How much has the spread of private ownership of houses distorted investment in this country, perhaps denying it to commerce? (Aided by planning permission restrictions.)

oldnick

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Bricks and mortar and plastic Apr 13, 2014 7:34:53 GMT

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Post by oldnick on Apr 13, 2014 7:34:53 GMT

This is a partial answer to my own question, dealing as it does with the situation as it was perceived thirteen months ago by one economist.
www.bbc.co.uk/news/business-17398014

But I still don't think it distinguishes between debt to fuel house price inflation, and the value of our estates on death, and debt that puts money back into the economy quickly.

davee39

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Bricks and mortar and plastic Apr 13, 2014 8:19:29 GMT

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Post by davee39 on Apr 13, 2014 8:19:29 GMT

I would argue that housing debt would be the same even if we rented. In the days (pre Thatcher) of social housing, council housing was funded by public debt, which was cheaper than private debt. Because these properties were not marketed their cost was limited to build cost, although the land presumably had an open market value. In a free for all unregulated market, where builders fail to build because they can make more money from land value appreciation, and where government believes in a market solution, the private landlord thrives. However Buy to Let is based on even more debt than the average established home owner would have outstanding (assuming a few years on a repayment mortgage). In this scenario Rental and buy to let leads to more indebtedness (among the landlords) than traditional home ownership where a loan might be repaid over a normal working lifetime. While claiming to believe in markets the government has spent 5 years heroically distorting them by using near zero interest rates to support high property values and protect the wealth of its supporters.

As to the dead money argument, there is a school of thought that homeowners should be taxed on the implied rental value of their property. Since homeowners do not pay rent the rental value of the property is the perceived income.

Property investment is not denying commerce. There is (or once was) sufficient capital available for anyone who wishes to invest, we just no longer have the mechanisms to distribute it. Capital formerly invested in manufacturing has gone overseas, Banks are dysfunctional and the raising of funds by issuing bonds is uncommon. Companies are risk averse, badly managed and driven by short term bonus linked profit targets. The railways were financed by private investors, today the government passes a begging bowl to the russians and chinese to build nuclear power stations. This could be financed instead by a publicly issued Nuclear Power Bond, with a decent interest rate.