That worst possible system

A bit more on “The worst possible system” of economics and resource-management, because Linda (god[dess]-bless-her-cotton-socks 🙂 ) said she wanted an example.
Perhaps one of the simplest examples is the mismatch between price and value on housing. The value of a house hasn’t changed much in decades: in fact, other than the addition of ‘mod-cons’ such as power and plumbing and the like, the real value – the usefulness – of, say, a three-bedroom house hasn’t changed much in centuries. What has changed, and radically so in the past few years, is the price – in other words the amount of resources, time and labour needed not to create that ‘usefulness’ (i.e. build it and suchlike), but to access it (i.e. actually to use it).

For the whole of the past century, a standard notion of ‘affordability’ underpinned the housing market: the standard wisdom was that the price of a house was around three times the typical salary for the typical buyer in the respective region. This, in turn, tended to reflect replacement costs, which were a sizeable proportion of the nominal price. But somewhere around five years or so ago, affordability and replacement-cost both vanished out of the window: instead, a kind of imaginary notion of ‘investment value’ seems to have been invented, which sent house-prices spiralling through the roof, doubling and then doubling again. In both Britain and Australia, current house-prices are suddenly around ten times the typical pre-tax salary n- no-one’s idea of ‘affordable’, then. And given that a typical mortgage works out as at least double the nominal house-price, that’s a heck of a lot of someone’s life being taken, just to put a shoddily-built roof over one’s head…

The price has changed enormously. But the value of the house is completely unchanged: it’s still just the same (or worse) three-bedroom house, in the same location.

Hmm…

So: who ‘benefits’ from these enormously-inflated prices? Well, obviously, there’s the real-estate agents: their fees for exactly the same service rise on a percentage basis – around 1% or so in Britain, but a whopping and entirely unjustifiable 3% in Australia. Then there’s the banks: inflated mortgages are almost literally a licence to print their own money, for no significant increase in risk. And the various layers of government get nice fat increases in taxes and duties and the like
– but appear to provide nothing new in return.

And who loses? In an all too literal sense, most people lose a higher proportion of their life – for nothing in return. To give just one other example, according to a poster that I pass on my way to work, some 6% of cancer-patients lose their homes as a result, because they are ill, and hence can’t ‘keep up with payments’ – which hardly helps their recovery, does it?

Yet in a non-possession-based economy, all of these insanities would disappear. Probably to be replaced by other insanities, of course – but they’d have to be really bad to even begin to compare with the inefficiencies and ineffectiveness of the present mess…

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One comment on “That worst possible system
  1. Linda says:

    Heh. I did receive socks for Christmas: I’m one of the few people who *enjoys* receiving socks for Christmas. 😉

    Yes, this makes sense. Particularly poignant for me at the moment, since we and a bunch of our neighbours are being kicked off the land — we own the home, but not the space in the mobile home park which will make way for 37 townhomes at around $750,000 apiece.

    On the other hand, by purchasing this small home, we benefited to the tune of roughly $40,000 over the nearly 8 years we were here; in other words after figuring the cost of the house and the space rent, we’d saved that much money.

    I think realtors get a 6% fee here, actually: 3% for the agency and 3% for the agent.

    And I have indeed been quite horrified by the growing price of housing in the UK. My parents, unhappy with their current situation (their quiet village is rapidly becoming a dormitory town for Inverness), are unable to move because while they would sell their home at a profit, they wouldn’t be able to move to a quiet village and retain their standard of living. I’m kind of accustomed to the crazy prices in the Bay Area, which is why moving over the stateline to Nevada or Oregon is looking increasingly attractive.

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