The chart above I like because it shows you even if your country is growing at 10-12% RGDP per year, housing prices can still go down relative to incomes. And not only that, could you imagine if housing went from where it is today (indexed at 105) to where China and Japan are (indexed at 65). A near 40% drop FROM TODAY'S PRICES.
Again, if you want your assets to have value, heck if you want the country to have value, you have to (I'm sorry) PRODUCE SOMETHING OF VALUE!
Never mind, nobody listens to me. Heck, how about instead of being a cold-hearted, reality spewing economist, I capitulate, become a politician, and tell people what they want to hear?
I promise warm fuzzies for everyone as we major in peace studies and vote for hope and change! If we care, social security will solve itself! Yea for us! We exist! YEA!!!!!!
Like, what was it, 40% inflation a year or so ago? Nice boosterism for a totalitarian society, by the way.
ReplyDeleteHi Captain,
ReplyDeleteI guess I could argue that you are being a little flippant, as there is no magical value in the year 2000.
Ignoring that issue, I have a larger point to make.
Imagine that a new invention were to come along that allowed a nice 5000 sq ft house to be built for $50,000. After all costs, it was sold for $120,000. And this is a nice house, with tile and nice woodwork.
Lets say builders started building them all over the place and started selling them. Would you calculate that the entire economy got richer, or poorer? I guess people like me (I live in Eden Prairie) would be mad, because the value of my house would fall a lot. But despite my plight, it still seems that we got richer, not poorer.
Everyone who was living in a simple 2000 sq ft house, is now living in a nice 5000 sq ft house. That's richer right?
Who is richer? A guy living in a 5000 sq ft house with tile and hardwood everywhere, which costs $100,000. Or a guy living in an condo in San Francisco who paid $500,000 for 2 bedrooms?
I would almost argue that the further house prices fall, the richer we all get. I'm not sure I'd be able to pull off the argument, but it seems counter-intuitive enough to be true.
Maybe it comes down to: Is a house an investment or a consumer durable? If a BMW 5 series started selling for $10,000, that would make us richer, right? Why not a house? I guess because a BMW is a consumer durable, and a house is an investment. Really?
James
I believe all Socialists live in a world of cotton candy and ice cream where everything looks pretty and has rainbows and when you see someone else they give you a hug and tell you how special you are.
ReplyDeleteActually you have a good point. You have to spend money to make money.
ReplyDeleteI get your point Captain, but I'm skeptical of any numbers coming from the Chinese government.
ReplyDeleteI've never been to China. What does a "house" look like there?
Do most of the people in Beijing and Shanghai live in houses or communist block housing?
In the countryside, would they be called "houses" or "huts" or "shacks" by an American?
Is housing subsidized like gasoline is? Do they have to wait in a government line for a house? Are there bribes involved for moving up the list which aren't captured in the house price?
Really, I'm 100% ignorant about what housing in China is like, but I doubt it's a free market.
Their incomes are rising relatively fast, so any of these data problems could raise serious questions about a comparison.
When a country subtracts 1994 from 2008 and gets 16, and then creates documents to prove it, I don't buy any statistic they're selling.
Maybe the decline in housing prices in China is due to decreased demand only.
ReplyDeleteI mean, would you sink money into something that's probably going to fall on your head and kill you in the next earthquake?
Seems to happen to a lot of folks over there, crappy cement and whatnot. DIY mud huts may be all the rage.
I have asked a Chinese economist to explain their housing market to me. When she replies, I'll let you know what she tells me.
ReplyDeleteThis gentleman's PhD thesis topic sheds some light on the current state of housing in China which had been rigidly controlled and highly subsidized into work-unit compounds.
http://chineseculture.about.com/gi/dynamic/offsite.htm?site=http%3A%2F%2Fwww.isop.ucla.edu%2Feas%2Feass%2Ftransition%2Fyouqin_huang.htm
There has been an emergence of a new housing paradigm and market approaches are being used on new houses, while old houses are being apportioned by the old methods.
Ironically, as this author points out, there is a transformation underway from considering housing a welfare good to a commodity. This is exactly the opposite of where the US is going with health care. Remember in the second debate when the woman asked if health care is a commodity?
Apparently, Red China and the US are going to pass by one another on the highway between Socialism and Capitalism.
What the chart tells me:
ReplyDelete1)There is no such thing, IIRC, as privately owned land in China. You might own the house (a depreciating asset, as you gotta keep fixing it), but you can't own the plot it's built on (an appreciating asset as, they don't make more land— well, excepting the Dutch).
2)A big driver of escalating house prices (excluding all the mortgage bubble driven nonsense on which you have written so well, but especially in the crashiest markets) is the cost of the "right-to-build": all the crap from environmental impact studies to greasing the zoning board. All that probably costs 50 bucks and a carton of Marlboros in China, 5 or 6 figures here.
Just spitballing.
What the chart tells me:
ReplyDelete1)There is no such thing, IIRC, as privately owned land in China. You might own the house (a depreciating asset, as you gotta keep fixing it), but you can't own the plot it's built on (an appreciating asset as, they don't make more land— well, excepting the Dutch).
2)A big driver of escalating house prices (excluding all the mortgage bubble driven nonsense on which you have written so well, but especially in the crashiest markets) is the cost of the "right-to-build": all the crap from environmental impact studies to greasing the zoning board. All that probably costs 50 bucks and a carton of Marlboros in China, 5 or 6 figures here.
Just spitballing.