Sunday, August 20, 2017

A sustainable trend?

Is housing a better investment than equities?

"Moving onto the conclusion that housing is a better investment than equities then there are plenty of caveats around the data and the assumptions used. What may surprise some is the fact that equities did not win clearly as after all we are told this so often. If your grandmother told you to buy property then it seems she was onto something! As to my home country the UK it seems that the Chinese think the prospects for property are bright." As noted in the comments, regional variations, taxation, liquidity and the bailout of exposed banks in 2007 are factors in this complicated discussion.

Posted by quiet guy @ 01:07 PM (5590 views)
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5 thoughts on “A sustainable trend?

  • Perhaps this is Recardo’s law of rent sucking money from the real economy iinto property

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  • Neither Ricardo nor Henry George had a general theory to back up their claims, so their economic rent theories were simplistic and concentrated too much on agricultural land. Both refused to extend the concept of economic rent (unearned income) to the banking sector and the creation of debt, neither looked at the whole spectrum of rent extraction, from landlords to monopolies to finance and debt creation. Neither looked at public enterprise as a means of lowering costs of production and keeping basic infrastructure out of the hands of bankers and ‘privateers’. Thorstein Veblen is a much better economist than those two. He looked at real, institutional political economy rather than at the marginalist ‘as if” economy of Ricardo. He saw credit as created for speculation, especially in urban land, and saw land rent as capitalised into mortgages to be paid to bankers.

    In Ricardo’s day big landlords owned the land. Ricardo was a bank lobbyist – argued bankers’ cases before Parliament – and his brothers owned a loan-making capital firm. The banks were not into land speculation and mortgages back then, but they were into financing international trade, and that’s where Ricardo’s theories came in. England should specialise (‘comparative advantage’) and buy grain abroad (hence R’s opposition to the Corn Laws’), sell industrial products in return and R’s brothers would finance export-import, do currency swaps etc. and everybody – including raw- material producing colonies – would be a winner.

    From Veblen, OTOH – “The location of any given town has commonly been determined by collusion between ‘interested parties’ with a view to speculation in real estate, and it continues through its life-history (hitherto) to be managed as a real estate ‘proposition.’ Its municipal affairs, its civic pride, its community interest, converge upon its real-estate values, which are invariably of a speculative character, and which all its loyal citizens are intent on ‘booming’ and ‘boosting,’ – that is to say, lifting still farther off the level of actual ground-values as measured by the uses to which the ground is turned…..Real estate is an enterprise in ‘futures,’ designed to get something for nothing from the unwary, of whom it is believed by experienced persons that ‘there is one born every minute.’” Farmers and other rural families from the surrounding lands look “forward to the time when the community’s advancing needs will enable them to realise on the inflated values of their real estate,” that is, find a sucker “to take them at their word and become their debtors in the amount which they say their real estate is worth.” The entire operation, from individual properties to the town as a whole, is “an enterprise in salesmanship,” with collusion being the rule..”

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  • tenyearstogetmymoneyback says:

    I’m not going to disagree with this but there are a couple of other factors to consider.

    With both “investments” you have to look long term. As the article quickly points out:

    “and can fluctuate significantly over time”.

    An addition I should add to my user name is that the people who bought my first house from me
    (in 1989) lost money over the eight years they had it.

    The other big difference is the price of entry to housing “investments” is so much higher.
    “Sid” was easily able to take a punt on British Gas for a few hundred pounds and let it take care
    of itself, but what is the minimum investment in both money and effort to invest in a second property?

    I have often thought it is a great shame that there are few ways of investing in domestic property
    without buying a whole second property. If you could (for example) buy shares in a housing association
    it would be very tempting and I am sure they would do a better job for the tenants than “Sid”.

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  • “I have often thought it is a great shame that there are few ways of investing in domestic property without buying a whole second property. If you could (for example) buy shares in a housing association …”

    I’m not enthusiastic about the second property concept. If you have already bought a house with a typical salary and mortgage then you’ve already made a pretty big investment into property as a portion of your assets. Why not diversify to another asset class?

    The concept of renters (and preferably only renters) being allowed to build up shares in Housing Associations might make more sense.

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  • @2
    not sure if you are not doing HG justice regarding the role of agricultural land in his account. In ‘progress and poverty’ a central role is accorded to speculation based on the expectation of development, and not primarily agricultural. He is writing in the context of a frontier society. As I recall, possibly incorrectly, it’s just that he thinks there is a kind of floor to employee living standards set by the outside option of going it alone at the agricultural frontier.

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