This page has been archived and commenting is disabled.

It's A Lose-Lose-Lose Deal For America: How Real Estate Bubbles Push Rents Higher

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Central Planning pushing housing prices higher is not win-win--it is lose-lose-lose.

The Status Quo views real estate bubbles as a "good thing": as home prices rise, the homeowner's collateral (equity) rises, creating both a psychological "wealth effect" (now that we're richer, we can afford to borrow and blow more money) and a temporary (and thus phantom) increase in collateral that will support more household debt.

What few seem to realize (or discuss) is how rising home prices push rents higher.This is an entirely pernicious effect, as renters aren't getting any more "home" for the higher rent--they're paying more money for the same shelter.

The standard-issue financial pundit (SIFP) has little interest in rents other than their role as income streams that support higher valuations for real estate investment trusts (REITs) and other tradeable real estate securities.

Rising rents reduce the discretionary income of renter households; since incomes have been declining in real terms for 90% of U.S. households, paying more rent leaves less income for everything else.

The Federal Reserve and the financial sector pay little attention to the 1/3 of households who rent; their focus is on the 2/3 who (at least nominally) own a home.

Rising home prices are presumed to benefit those 2/3 of households, and if 2/3 of households are seeing increases in equity, that "should" create a "wealth effect" that boosts consumption--the Keynesian Cargo Cult's sole metric of "prosperity."

Anyone with a concern for rising income/wealth disparity should be interested in the connection between Fed-inflated real estate bubbles and rents. Rising rents cause disposable income to drop, and renters do not have the chimeria of increasing equity in a home to offset that decline.

In a market economy that isn't managed by central banks and governments, rents respond mostly to the supply and demand for rental homes and apartments, which is primarily based on the job market: cities with strong job markets experience high demand for rentals, cities with poor job markets generally see less demand for rental housing as people move away to seek a job or better pay/prospects.

This has long been a function of free enterprise; high rents occur in places with higher wages. Historian Fernand Braudel showed this was true even at the start of modern Capitalism: cities with vibrant economies in the 15th century had higher costs and higher wages.

The problem with real estate bubbles is that they don't create higher wages--they only push housing costs higher. The reasons why are not hard to understand.

1. As home prices soar, fewer people can afford to buy on terms that make financial sense. This increases the pool of people who must rent, as they cannot afford to buy a house or condo. This increase in demand for rental housing pushes rents higher.

2. Investors buying rental housing expect a return based on the cost of buying and maintaining the property. As a rule of thumb, real estate investors typically expect a real return of around 4% on the market value of a property.
Thus a house that was purchased for $150,000 should yield a net return after expenses around $6,000 annually. (This calculation is complicated by the mortgage costs, depreciation and the tax benefits offered by owning real estate.)

Another conventional rule of thumb is that rental property valuations are based on a multiple of the annual rent. For example, let's say the $150,000 home can be rented for $1,300 a month. The annual rent is thus $15,600. Investors typically expect a multiple of between 8 and 14; a multiple of "10 times gross" yields a valuation for the house of $156,000.

What happens when the price of the house doubles to $300,000? The yield and valuation multiple on the investment plummets unless rents are raised: the net yield drops to the 2% level, not very attractive when long-term Treasury bonds are yielding a higher return, and the multiple rockets to an unattractive 20 time gross.

Property taxes on the higher-priced home will also rise. Typically, property taxes are based on the market value of the home; when the market value leaps up, so do the property taxes.

The natural response of investors is to push rents higher to bring the return on their investment back in line with historical norms. In areas with strong job markets and a shortage of affordable housing, they will get the higher rents because the pool of renters has no choice other than to move to another locale.
That is a possibility for those on fixed incomes (Social Security, pensions, etc.), but for those dependent on earned wages, the only option is to move to a lower cost area. As Braudel noted, this generally correlates to a lower-wage area. The wage earner then has to calculate the relative advantage of lower cost housing and lower income.

Those seeking higher wages will gravitate to locales with strong job markets, and pay the Fed-boosted rents as the cost of living in a higher-wage area.

3. The third factor is the floor placed under the rental market by subsidized housing programs (Section 8). Federal and state programs that pay most or all of the rent of low-income households base the rent they will pay on local market conditions: the subsidies are high in high-rent areas, otherwise low-income households would be unable to find housing.

Let's say that the rent on the house that was once $1,300 per month rises to $1,800 per month as the investors push rents up to reflect the higher prices they're paying for rentals, property taxes, etc. Landlords that opt to rent to Section 8 households will get (say) $1,750 a month, paid directly by the government.

That subsidized rent becomes the floor under the entire rental market. Landlords who were previously happy to receive $1,300 per month will naturally see the "bottom" of the current market as $1,750: if you can get paid $1,750 per month rent by the government, why take less than $1,750 per month under any circumstance?

The implosion of America's debt-based, asset-bubble-based centrally planned economy can be summarized by one phrase: unintended consequences. That's the ultimate flaw in all central planning schemes: not all feedback loops and dynamics can be foreseen or controlled by the central planners.

Central Planning pushing housing prices higher is not win-win--it is lose-lose-lose:renters lose, home buyers expecting ever-higher valuations lose and the U.S. economy loses, too.

Janet Yellen, the Nation's New Chief Slumlord January 9, 2014

Could the Fed Lose Control of the Frankenstein Economy It Has Created? January 2, 2014

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 01/14/2014 - 10:28 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Funny thing about rents and mortgages.  One actually needs to have a decent wage in order to pay them...

Tue, 01/14/2014 - 10:33 | Link to Comment negative rates
negative rates's picture

Release this twice, I didn't get the first time around.

Tue, 01/14/2014 - 10:42 | Link to Comment Chuck Norris
Chuck Norris's picture

"Your rents due Mother Fucker!" - Slumlord from Coming to America

I love me my rental properties.  The more socialism the Obamanoids vote for, the more cash flow I make.  Booya

Tue, 01/14/2014 - 11:07 | Link to Comment americanreality
americanreality's picture

Parasite.

Tue, 01/14/2014 - 12:22 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

Investors buying rental housing expect a return based on the cost of buying and maintaining the property.

 Yes! Thank God that in some places landlords are still able to charge higher rents to offset infation.  This is one of the main reasons owning real estate is a good idea, if one wishes as I do to practice disintermediation.  The alternatives of intermediation and rent control are the stuff of socialism, or worse!

 

   08/14/2010 - 15:47

 

I do not advocate inaction, only disintermediation, that is the removal
of banks as intermediaries to investment. As an example, one can buy a
property with cash, and without an agent, and be a landlord directly. 
It used to be the case that one needed to be very, very wealthy before
really needing the services of a bank.

 

http://www.zerohedge.com/content/weekend-poll-buffett-or-gross-inflation...

Tue, 01/14/2014 - 12:46 | Link to Comment Zero Hung
Zero Hung's picture

Durden's Law (also known as Durden's Rule/Law of Socialist/Socialism Analogies) is an assertion made by Tyler Durden in early 2014 that has become an Internet adage; particularly on fringe/crack-pot economics websites (see 'Zero Hedge').

It states: "As an online discussion grows longer, the probability of a comparison involving socialists/socialism approaches 1." In other words, Durden said that, given enough time, in any online discussion—regardless of topic or scope—someone inevitably makes a comparison to socialists or socialism.

Although in one of its early forms Durden's law referred specifically to economics blogs, the law is now often applied to any threaded online discussion where it has been invoked for the inappropriate use of socialist/socialism analogies in articles or speeches. Causal factors put forward to explain why individuals frequently use these terms out of context include the possibility they have never opened a fucking dictionary or read a single historical reference of note.

In 2014, "Durden's Law" will be nominated as an entry in the third edition of the Zero Hedge Dictionary.

 

Tue, 01/14/2014 - 12:58 | Link to Comment Atomizer
Atomizer's picture

Good-bye, and good luck!

Tue, 01/14/2014 - 15:55 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Short summary of wealth creation, that wealth is create by production not consumption, is quick correct all false economic theory. Sorry Keynes, Krugman, et al macro economist.

Tue, 01/14/2014 - 11:20 | Link to Comment toady
toady's picture

Right there with ya Chuck, although I wouldn't put it all on O. I really hit my stride as a landlord when the tent cities were called Bushvilles.

If I hadn't left that trail of homes as I was transferred around the country I'd be up shit creek right around now. That extra few grand can be a lifesaver every now and then.

Tue, 01/14/2014 - 15:58 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Differential between entrepreneur and leech:

Both is make money, but entrepreneur is look for way to make life better for other, leech is only look for self at expense of other.

Same differential is between clean money and dirty money. You are dirty money is not welcome here.

Tue, 01/14/2014 - 10:34 | Link to Comment Deo vindice
Deo vindice's picture

To get a real value of your house - how much could you sell it for if the buyer couldn't get "easy money".

Housing bubbles are dependent on credit bubbles.

Tue, 01/14/2014 - 10:37 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Please, without "mark to fantasy" accounting all the prices would reset and banks would become (even more) glaringly insolvent overnight.  Leading to yet another taxpayer-funded bailout (TARP/TALF).

Tue, 01/14/2014 - 10:54 | Link to Comment kridkrid
kridkrid's picture

The coordinated take-down will be led by a movement led by someone who says all of the right things. Someone like a Ron Paul.

Tue, 01/14/2014 - 11:20 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Ron Paul "says all the right things"?  LMFAO!!!  Remind us how that worked out during his presidential runs?

Tue, 01/14/2014 - 11:36 | Link to Comment Deo vindice
Deo vindice's picture

I think you may be confusing "saying all the right things" with "believing and acting upon the right things you heard someone saying".

Just saying. . .

Tue, 01/14/2014 - 12:14 | Link to Comment LawsofPhysics
LawsofPhysics's picture

The poster believes in a "co-ordinated take down", that is not going to happen.  period.  I like Ron Paul, but even I know you can lead horses to water, but cannot make them drink.

Tue, 01/14/2014 - 11:41 | Link to Comment kridkrid
kridkrid's picture

I'm not sure what you are saying, or maybe I'm not making myself clear. Ron Paul says the right things... but people are led to believe he's a crackpot and the things he says are marginalized. Of course we should have sound money or competing currencies, as he's advocated for all of his life... of course our interventionist foreign policy is a total disaster... of course the nanny state has gone into overdrive over the past 15 years, etc. etc. etc. But he's represented nothing more than controlled opposition all along. I don't think he's been "in on" the controlled opposition, but I know many who do, and they make a good case. My point... the tide will turn when the masses are told "hell... he was right all along"... him or someone like him. And while RP said the right things all along, his prescription only hastens the collapse. Thus my point... the coordinated take down happens when the US public finally asks for it, though they won't know they are asking for it and the things that are right will become scapegoated.

Tue, 01/14/2014 - 12:09 | Link to Comment Duke of Earl
Duke of Earl's picture

Ron Paul says the right things to people who are responsible and can understand a greater worldview.  There are (at least) two problems with him taking over as president.

1) The US has been on a steady march to permanent adolescence of its population.  There will be no moment when people will act irrationally and request a correction to the way it should be as Dr. Paul advocates.  Instead, they will act and vote in a way that will benefit themselves.  Those leaders will be the ones saying they will take (tax, nationalize, whatever) money from someone else and give it to them.

2) Government only takes action when there is a crisis, any action they take will be toward greater power.  The slow steady march toward a dictator will continue, the US public is begging asking for a simpler system and they will get it the only way the system is designed to provide.

I like what Ron Paul says, but I think he'll always be thought of by the majority as a crackpot.  The world needs crackpots.

Tue, 01/14/2014 - 12:43 | Link to Comment Greenskeeper_Carl
Greenskeeper_Carl's picture

unfortunatly you are probably correct. the govt gets involved in something and completely fucks it up, and the masses immediatly demand that govt do something to fix it, which always ends up with the govt giving itself more power and more money. The irony, lost on many, is that people demand the govt to fix the problems that exist because of the govt, rather than have the govt just get out of the way. All of this continues the march towards a dictator. I think the ones who are 'crackpots' are the ones who, despite centuries of evidence to the contrary, think the govt is the solution to everything.

Tue, 01/14/2014 - 13:19 | Link to Comment Winston Smith 2009
Winston Smith 2009's picture

"The US has been on a steady march to permanent adolescence of its population."

Panem et circenses... How about a new iToy or HDTV on credit with a new season of American Idol or pointless "reality" show to watch?

"If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be." -- Thomas Jefferson, 6 January 1816 letter to Charles Yancey

Tue, 01/14/2014 - 12:11 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"the tide will turn when the masses are told "hell... he was right all along"..."

Allow me to clearify my point, history is very clear on one thing.  The "masses" are not told shit.  They are cannon fodder, period.

Hedge accordingly.

Tue, 01/14/2014 - 12:59 | Link to Comment kridkrid
kridkrid's picture

That's simply not true. the masses are told a ton of shit... most of it is designed specifically to make them cannon fodder. We have chosen a monetary system that requires a constant expansion of debt or the system implodes upon itself in cascading default. You are saying the same thing when you talk about banks being insolvent in your original post. My response was basically in agreement with yours. As soon as the fantasy world that has been created by credit money, usury and accounting gimmicks is exposed, the house of cards comes down. I'm suggesting that if they wanted to take the house of cards down, the easy way to do it would be to convince the masses that the alternative to the fantasy will "fix shit"... only you and I both know that it won't be fixed, it will only collapse. Post collapse you can then start over, but things are not "fixed". Along the way, the masses will be cannon fodder, as you say. And we won't "start over" with the things that Ron Paul advocates for... because we can't have nice things.

Tue, 01/14/2014 - 12:37 | Link to Comment Greenskeeper_Carl
Greenskeeper_Carl's picture

"things that are right will become scapegoated" kinda like michael burry and 'the big short'? How betting against the govt/fed and the banks stupid, foolish, doomed to fail policies creating a way overinflated housing bubble is sold to the masses as 'betting aginst america' and that this person should be punished and hated? yes, ron paul said all the right things, but the masses dont like to here that they have been living in a debt fueled bubble of prosperity that is unsustainable and must change. they like to here that things will be fine with a few changes around the edges(can-kicking) I cant tell you how many people i heard say things like " i like ron paul on the domestic, monetary, and civil liberties front, but his foriegn policy is crazy" not realizing they all go hand in hand.

Tue, 01/14/2014 - 12:49 | Link to Comment kridkrid
kridkrid's picture

Exactly right. Michael Burry is an absolute hero... just like Kyle Bass. "Speculators" are always blamed for the destruction of corrupt markets... and the masses tend to buy it. Same as it ever was. Fuck it all.

Tue, 01/14/2014 - 10:58 | Link to Comment thunderchief
thunderchief's picture

My property taxes/insurance just got jacked up almost 20 percent this January.  For some reason, in this no inflation fantasy world, this does not suprise me.

Anyone for some pink slime rib eye steak?

Tue, 01/14/2014 - 13:10 | Link to Comment Atomizer
Atomizer's picture

Renter & Owner ZH readers.. Bit of humor for you. :)

The Catherine Tate Show - Drunk estate agent

 

Tue, 01/14/2014 - 10:29 | Link to Comment Sudden Debt
Sudden Debt's picture

AND WHAT MAKES MATTERS WORSE IT THAT BECAUSE ALL OF THOSE FLATSCREEN TELEVISIONS, HOMELESS PEOPLE CAN'T FIND A PROPER CARDBOARDBOX TO SLEEP IN EITHER!!!

DOUBLEWHAMMY!!

Tue, 01/14/2014 - 11:41 | Link to Comment Acet
Acet's picture

Fortunatelly the average fridge just keeps getting bigger to better fit in ever larger McMansions, thus providing for spacious cardboard mansions for the homeless.

Tue, 01/14/2014 - 22:57 | Link to Comment Trucker Glock
Trucker Glock's picture

Cardboard mansion with two-cart garage.

Tue, 01/14/2014 - 10:31 | Link to Comment Oracle of Kypseli
Oracle of Kypseli's picture

They forget affordability for first time buyers (fewer buyers) They forget lesser demand because of moving in with parents, moving in with chidren and moving in with roomates. Unintended consequences anyone?

 

Tue, 01/14/2014 - 10:35 | Link to Comment LawsofPhysics
LawsofPhysics's picture

By design.  Municipalities are raising property taxes, more foreclosures will come, then tax-free housing for immigrants (at first).  Once they get moved in the taxes go up, rinse repeat, we have been here before...

Finanical pricks have been slowly turning 'merica into another third world country since 1971.

Tue, 01/14/2014 - 10:43 | Link to Comment Mercury
Mercury's picture
It's A Lose-Lose-Lose Deal For America: How Real Estate Bubbles Push Rents Higher


Well A) One more reason to own the asset, not rent it.

and B) at some point rents are constrained by the intersection of supply and demand.

Just sayin'.

Tue, 01/14/2014 - 10:57 | Link to Comment Gromit
Gromit's picture

I'm trying to understand why rents keep rising.

Is it just a matter of population increase overrunning new construction?

True, very little is benig built, althiugh apartments are beginning to ramp up.

Tue, 01/14/2014 - 11:26 | Link to Comment Mercury
Mercury's picture

Population could be decreasing but if more people are now opting to rent instead of buy (for whatever reason) then that can drive rents higher all by itself.

Tue, 01/14/2014 - 10:41 | Link to Comment IridiumRebel
IridiumRebel's picture

seems post 1 won.......post 2, we hardly knew you.

Tue, 01/14/2014 - 10:44 | Link to Comment IridiumRebel
IridiumRebel's picture

We tried to sell our house and it did not work unless I wanted to give it away. We rent it now and will make some coin in the near future with it. Roll with the tide. 

Tue, 01/14/2014 - 10:58 | Link to Comment Postal
Postal's picture

While I feel for you, as I buyer I see the bubble--real estate is massivly overpriced. Sellers wouldn't like what I'd offer as it would be vastly below list.

Tue, 01/14/2014 - 11:04 | Link to Comment IridiumRebel
IridiumRebel's picture

I totally agree. We made it work out. Cheers!

Tue, 01/14/2014 - 10:46 | Link to Comment Dr. Engali
Dr. Engali's picture

Damn! I took a 50/50 chance and commented on the wrong post. Now it's gone, and I'm devastated. I demand retribution for pain and suffering. Is there a lawyer in the house?

Tue, 01/14/2014 - 10:53 | Link to Comment Deo vindice
Deo vindice's picture

Is there a Bitcoin analogy in there somewhere, Doc?

Tue, 01/14/2014 - 11:05 | Link to Comment Dr. Engali
Dr. Engali's picture

I'm sure Fonestar could find one.

Tue, 01/14/2014 - 10:54 | Link to Comment Agent P
Agent P's picture

The rent is too damn high!!!

Tue, 01/14/2014 - 10:56 | Link to Comment Postal
Postal's picture

Not only are rents higher, but there's nothing even available. I just moved to St. Louis for a job, and it was a mess trying to find a rental that wasn't a shithole with outrageous terms--and even those had a waiting list.

Tue, 01/14/2014 - 11:13 | Link to Comment americanreality
americanreality's picture

Surely there is something available in East St Louis.

Tue, 01/14/2014 - 11:19 | Link to Comment Postal
Postal's picture

Perhaps. Too far from work. I got a place in St. Charles until I can find something else.

Tue, 01/14/2014 - 10:57 | Link to Comment GreatUncle
GreatUncle's picture

As western nations create bubbles, raise the minimum wage to cover the ever higher costs your competativeness globally just went to hell in a handcart. Amusing really, because now China and the east rule the roost on cost per unit volume and can keep you in this position until they own everything.

WELL THAT IS WHAT I WOULD DO.

Even more amusing in the race to devalue the base of the economy how do you justify the end value such as homes? Along the lines you have a Chinaman's income and want to buy something basic to live in. You might afford a cardboard box alothugh it will be rental of course.

Give it a decade, maybe less because they are still running the same economy with the exact same problem when it needs correcting to prevent things becoming even worse.

Tue, 01/14/2014 - 10:57 | Link to Comment Shizzmoney
Shizzmoney's picture

There's no inflation, though?  #bullshit

Tue, 01/14/2014 - 10:57 | Link to Comment Dingleberry
Dingleberry's picture

"Inflation?.....what inflation?....who the fuck said INFLATION!?"

-Heli-Ben

Tue, 01/14/2014 - 11:14 | Link to Comment Spungo
Spungo's picture

Are you telling me that widespread poverty is bad for the economy??? I thought paying 70% of gross income to housing was why people in China are so wealthy.

Tue, 01/14/2014 - 11:18 | Link to Comment yogibear
yogibear's picture

How about shanty towns? More trailer parks. Blackstone and the other hedge funds can then pay for empty houses.

Tue, 01/14/2014 - 11:20 | Link to Comment honestann
honestann's picture

The author is correct, but this issue is simpler than the author describes.  No numbers are necessary.  

The more a person spends to pay his mortgage or rent payments each month, the less that person has each month to spend on everything else.

And everything else == the economy!

A healthy economy is an economy in which prices are low... especially prices for necessary goods that cannot easily be avoided (shelter, utilities, auto, fuel, food).  The reason should be obvious.  When mortgage, rent, utilities, auto, fuel, food are cheap, everyone has money to spend on "everything else" AKA "the economy".

Expensive real-estate is the single worst possible situation obstacle to a healthy economy.  Except for a few individuals in special situations, everyone loses - everyone has a lower life-style and more precarious financial situation.

The modern nothing that high home prices is good --- is pure fabrication, pure propaganda, pure spin.  And frankly, only a species grossly short on mental abilities could ever believe such blatant nonsense.

But hey, if low home prices are so horrible, please abuse me.  Please sell me a 1000 acre luxury oceanfront ranch for $100.  I am happy to accept such abuse.  Sheesh!

Tue, 01/14/2014 - 13:18 | Link to Comment the grateful un...
the grateful unemployed's picture

a business model which relies on selling products is less profitable than one which charges the user a fee to use those products. fees generate more profit over the life of the product than the sale of the product. computer printers are free, ink is expensive.

the guys who sell the gold miners picks and shovels make the money,  to take that analogy further, which is better for gold miners, high prices or low prices? to generate maximum economic growth government policy has to support higher asset values.

in the first depression farmers had price controls, which meant they couldn't sell their crops. what resulted then was a wholesale transfer of property from private to corporate ownership. substitute landlord for farmer and you are in the present age. corporations are buying up private homes, all that is missing is a new FDR to subsidize the renters, which ultimately benefits the landlords, who are already being subsidized to buy their property.

the solution to that was ww2, and ww3, the war on terror is going underground (NSA), as it says in the constitution you have the right to security in your own homes, we accept that responsibility, and define the terms. 

by the way you don't want a 1000 acre luxury ranch because of the expense.

Tue, 01/14/2014 - 13:41 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"by the way you don't want a 1000 acre luxury ranch because of the expense." -  Unless of course, you already have a dependable tribe of sharecroppers...

just saying.  The real economy/market has a life of it's own and history is pretty clear on how fast the status quo can change.

Tue, 01/14/2014 - 21:26 | Link to Comment Blankenstein
Blankenstein's picture

Not sure why the down arrows - must be realtards.  Pure mathematics, yet the NAR, banks and mortgage brokers try to push this huge lie 24/7.  This is playing out right now around me.  I'm in a fairly affluent county, but businesses are closing left and right only to be replaced with some discount store, second hand shop, restaurant or hair salon. Yet house prices are still way overpriced.  This will not end well.

Tue, 01/14/2014 - 11:30 | Link to Comment Rockatanski
Rockatanski's picture

is it safe to say the next bubble will be the social media companies like twatter, facefuck, etc?

this housing stuff feels like a scam too, allowing hedge funds and banks to own the serfs home.

Tue, 01/14/2014 - 11:53 | Link to Comment yogibear
yogibear's picture

When real estate becomes a trade like stocks you know it's bubble time. Once it eats up the majority of the imcome it's destined to fail.

Tue, 01/14/2014 - 12:10 | Link to Comment Rockatanski
Rockatanski's picture

exactly!

i'm sure everyone saw the tv news from bloomberg or cnbc about blackrock buying homes and then bundling the rentals as MBS. WTF?

 

Tue, 01/14/2014 - 11:53 | Link to Comment Reaper
Reaper's picture

Ben and now Janet are raising your rent so your landlord will feel richer and spend some of his increased rent income to stimulate the economy. This is called the Bern/Yell trickle up and then trickle back down economic plan.

Tue, 01/14/2014 - 12:26 | Link to Comment evernewecon
evernewecon's picture

 

 

 

 

1st week 101 stuff.

 

In health care demand falling short of 

need is learning one's cancer was 

caught just a little too late to be

simply excised (cured.)

 

But, still in health care, actually, 

those told that, who couldn't pay for 

that much still, still had their cost 

shifted to everyone else all along anyway.

 

In real estate, demand falling short of

need is homelessness.

 

In this case, of course, it's "effectively"

scarcer real estate.  There're in fact 

many vacant properties whose presentation

to the market is simply controlled.

 

 Obviously more aggressive,

Resolution Trust type measures, with interest

rate policy dedicated to the full

population's interest, and with those

who SOLD the bubble allowed to

clear the market rather than be chained

to its artificial reflation, along with 

those who put down 5/10% who'd've

been better off with non-recourse than

with sharecropper'hood,  could have 

brought us to a better place by this time.

 

And that place would've included

lower real estate prices and less

unused, vacant property.

 

 

Tue, 01/14/2014 - 12:47 | Link to Comment the grateful un...
the grateful unemployed's picture

none of there asset pumping policies work without new housing leading the way, just like the stock market falls without new money, housing will fall if its forced to ride the back of existing inventory. the government then creates an economic clu de sac for existing housing, (price controls if you will) in which real market values are half of the stated asset value, or the value to insure. my value to insure may be 500k, my house may be worth 300k, and a new home further out of town is 250k. if i could burn my house down (and not get caught) i could buy two new houses, if i wanted to sell, it would be a wash, in the meantime my (higher) insurance premiums are twice what they should be. now if i have still have a mortgage on my existing i am required to pay that insurance premium. ergo it makes sense for me to sell my old home and buy a new one. this gives a subsidy to new housing.

all government economic policy is directed against existing inventory, to subsidize new products, new spending and economic growth. if everyone keeps trading the same cars back and forth there is no economic growth, fortunately cars wear out much faster than homes. if you examine the existing car inventory in this economy you would be amazed. there are now several cars for every driver. the multiplier in housing is a lot more difficult, but right now the inventory of empty homes to renters (this is the number which should be watched) has to be very high.

the stock market believes that the population is increasing, though perhaps not as fast, and that government will be their sugar daddy, the one who pays the rent. buying up housing for rental purposes is a win win, government subsidizes new housing, and they pay the renters to live there. and they give the institutional borrower a sweet deal on rates. the renter is just the middle man, usg grows the economy, corporate america takes the profits, (returns their losses to the feds balance sheet) and the renter is just the mule, the middle man in the process. although if the economy grows some of it should trickle down to them (haha)

Tue, 01/14/2014 - 13:09 | Link to Comment Stuck on Zero
Stuck on Zero's picture

As a landlord I can tell you that most of the equity build-up is based on sweat.

 

Tue, 01/14/2014 - 14:06 | Link to Comment Conax
Conax's picture

There's a limit that the landlords had better respect.  Rich people don't generally rent. When no middle class folks can afford the rent they will just buy up old mobile homes and soldier on, and the landlords can try to entice the upper mids to rent their roach farms.

Good luck with that.

Tue, 01/14/2014 - 14:07 | Link to Comment Spungo
Spungo's picture

This really shows the disconnect between reality and modern keynesian economics.
Keynesians say: Everybody has unlimited money.  Driving up the cost of food, energy, and housing will increase GDP. 
Realists say: Money is very limited. Driving up the cost of food and housing means people have less money to spend on everything else.

Do NOT follow this link or you will be banned from the site!