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> If we all worked 3 days a week it would be enough to pay the rent. If we all worked 7 days a week it would be enough to pay the rent.

This is wrong. The reason rent is going up is because there's more demand than supply. Reducing the amount of money everyone has by a constant factor (in this case 3/5) will not change the supply/demand imbalance, so it won't solve the problem. Put another way: the reason rent is so high is to prevent some people from being able to purchase the product. There's not enough of it to go around. You're basically blaming the best known system for allocating scarce goods for the fact that scarce goods exist.

If you look at countries that try to act on the above notion, you'll find that high prices are replaced with impossibly long lines. And shortages. This is because reducing the price will only increase the demand for that good.

A better world view would be: if the baby boomers hadn't all had kids at the same time, we wouldn't be experiencing housing shortages. This theory (though incomplete) at least puts demand increases front and center. You could also blame cities for not allowing/supporting the construction of new housing. That theory (though incomplete) at least puts the supply shortages front and center.

Rents are set by wages, prices by credit.

http://i.imgur.com/oWxV1po.jpg

People live in one home, whether we work 3 or 7 days. You are confusing cheaper products garnering more demand with a flat need. This is why we should tax land: the supply is constant.

Demand is up due to financialization of housing by the banks and greedy landlords are their foot soldiers.

Edit can submit no more due to the usual HN censorship so this last edit for the guy below:

You are just talking across me with no regard to my point at all. The graph is from the ft and the y axis is linear, it's from 2012 with no cutoff due to a change in trend.

I'm not saying don't compete, my earlier post stated that when we all work more or smarter in aggregate the banks take the gains and we all end up running to stand still. That was my point.

> Rents are set by wages, prices by credit.

NO. Prices are set by supply and demand. No one is being forced to take out a loan, and if they could buy a given home with a lower loan, they would. Hence the loan is only enabling demand. You could say the same thing about employment, or inheritance, or tax breaks. The only reason prices change is because supply or demand changes.

You are basically saying that you'd like everyone to just accept their lot in life, and not compete with you for your current house. And in exchange you'll not compete with those in houses you'd prefer. And you're blaming the banks because they're helping those who don't agree that you deserve the hose more than they do.

When supply is scarce, prices go up. The value of the good does not go up. What is that extra price doing? That's you bribing the owner of the good to sell to you, and not to some other guy. You're paying to make the price so high that the next guy in line would rather live somewhere else, share a room, or go homeless.

> http://i.imgur.com/oWxV1po.jpg

The image, though interesting looking, is missing context. What units is the Y-axis in, and why does the X-axis only go to (what I assume is) 2012?

> People live in one home, whether we work 3 or 7 days.

People aren't born with homes. If you lost yours, someone would move in. Where do you think this other person is currently living? Why do you deserve your home more than they do? How should homes be allocated if not by whoever is willing and able to pay the most? Who will make new homes in this new system of yours? (an especially worrying problem since I think you suggested all the construction workers only need to work 3 days per week, and housing is already scarce)

> Hence the loan is only enabling demand.

> The only reason prices change is because supply or demand changes.

We are living in year 16 of the era of government pushing loan prices lower than the market would set them. 8th year since they've been pushing the loan pricing down VERY hard (ie. essentially to the zero bound, where you're only paying for the (also artificially lowered) risk of the banks, admin (ie. people employed to check payment and tax and ...) and a small profit margin for the banks).

While of course it is not really known how high the market would set loan prices, it seems the long term average is 4%. Since we've been below that for a while, let's call it 6%. Add the 3%-4% of risk, admin, tax and bank profit and mortgage rates should be somewhere between 8% and 10%, if you have really good credit.

What would house prices be with 9% interest rates instead of 3% ? That's quite normal a rate for mortgages, long term. My back of the envelope calculation says that they'd be, with the same monthly payment, a bit more than double what they should be, in market prices. Prices should be 60% less, or put it another way houses are 120% overvalued.

At a very optimistic 7% (the long term average), house prices would be about 45% less, or they're 75% overvalued.

(example calculation: with 3% mortgage payment, a 4000$ monthly payment will get you 1.12 million dollars, at 9% it will get you 0.52 million dollars, or a little less than half. At 7% it will get you 0.8 million dollars, or 45% less)

Hence I strongly disagree with your notion that house prices are determined by supply and demand. House princes are as high as the government can get them, and damn the consequences.

I mean, in some sense you're right. The literal USD figure is determined that way. However, if you doubled the number of dollars in circulation, and so "doubled the cost" of every home... you've also changed nothing in terms of real cost to consumers. As you say, they're still working just as many hours on the job, still giving the same percentage of their labor to the lender, and they still end up with a house at the end of ~xx years.

If the banks weren't giving the same risk adjusted rates to everyone, you can at least make the argument now that you've got two consumers (the bank is essentially donating money for the purchase to the buyer). But I don't see where that gets us here.

Nope. They change lending from 3 times primary income to way over 3 times household income. People are literally working longer for the same pile of bricks.

The cost of carry remains associated with wages just as rent does because we have to pay more, however as the cost of other items falls (due to efficiency / progress) the bankers hoover up the rest.

http://imgur.com/XS99m5v.jpg

We work longer, we work harder, and the bankers kick back.

Banks don't get to decide what people will pay, people get to decide what people pay. People make this decision in terms of real cost, not in terms of USD (since real cost determines their access to USD). People are not making that decision because the banks are putting a gun to people's heads and forcing them to pay more.

This is a separate point from real estate costs increasing historically -- that is caused by supply and demand. People are (as your graph nicely shows) choosing not to move as more people enter a given area, driving up the cost of real estate. This is to say that their demand is inelastic.

Unless you are suggesting banking as an industry is engaged in trust like behavior, they're not able to set the terms of rates in a way that will change their risk-free profit from a given individual at a given market price. If the price rises due to a supply and demand imbalance, they may be able to charge more to offset the increased risk of the purchase they are financing.

Banks set the amount. If banks start lending $1MM to employees on the basic wage that is how much basic housing costs.

For example recently in the UK the govt said they would "help" buyers by contributing a certain % for buyers. Housing went up by that amount. Available credit sets prices.

This is a waste of my time, I'm out.

> Banks set the amount.

Banks can't magically choose to write loans at unprofitable terms. They also can't write loans at noncompetitive rates in any sort of realistic quantity. These two forces (fear of principal loss through nonpayment/default, and loss of customers due to competition) dictate bank rates.

> If banks start lending $1MM to employees on the basic wage that is how much basic housing costs.

No. It will only cost that much for people unwilling to move away from highly competitive markets where construction is barred. For those living in areas which can be developed, housing prices will also be dictated by the cost of construction, which is presumably less than $1MM. Buyers will be pocketing the difference between the available $1MM and the cost of construction. This is to say that banks do not dictate prices for housing, but rather are only (sometimes) enabling (fools?) to go higher in an auction.

If banks did set prices for housing, they would have to also be setting the price of, for example, construction. Which is not the case, as that is dictated by the supply and demand of labor and materials.

Put another way: I'm sure in wherever you are, not every housing option is the same price. Do you honestly believe that banks are somehow dictating those price differences? If not, what is that force, and does accounting for it also account for the effect of increased credit availability on house prices? (A: supply and demand, yes)

> recently in the UK the govt said they would "help" buyers by contributing a certain % for buyers. Housing went up by that amount.

Yes, just like if you give everyone a raise by x% you'll see housing jump by that amount. As I've said in this thread several times already. This jump does not, however, represent a change in real cost to consumers (a change in the what percentage of their labor is being spent on a given good). As I've also said in this thread several times already.

> This is a waste of my time, I'm out.

Cya.

Close, but not quite.

> Banks scale up fiat money creation in response

The US money supply approximately doubles every 10 years, it's remarkably consistent modulo the occasional hiccup.

https://fred.stlouisfed.org/series/M2

You're right, that that the markets will reprice very quickly, and roughly speaking the more there is (stuff, workers, etc.) the lower the price will be. This would be much less of a problem if money was more evenly distributed, or if there was an efficient tax system in the US. Mostly the problem (if it can be described as singular one) in the US, and elsewhere, is the failure to tax the financial sector properly and redistribute that money back into the public infrastructure.

I think we should cut this at the source. I never like taxing bad things where alternatives exist, let's just stop banks creating money. They should be intermediaries of funds not creators.

https://bankunderground.co.uk/2015/06/30/banks-are-not-inter...

I think it's not possible to stop land speculation so it should be taxed to pass the gains onto the people. As most money is issued against land let's have a land value tax.

Secondly let the state decide how much money can be created each year via an agreed growth target, set by...look away now if you are a neo-liberal zealot...the state. Thirdly use LVT to provide an efficient basic income and to do away with income tax. Why do we tax work? We tax carbon to stop people emitting carbon.

The current "system", if one can even confer such a name on such a dog's dinner, is insane.

Regarding US M2, do we really have step jumps in productivity? Is it not reasonable that we see this trend upwards in a smooth(-ish) fashion? If so then bank issuance tracks productivity gains, no?

#### EDIT #####

Will have to stop posting now as whenever I post about finance and question banks hacker news emits a fake "you are submitting too fast" message which I just got now replying to a different thread about zsh on a different page.

I also cannot edit my top level comment two above this.

What a great platform for debat HN has. Clearly they are confident in their model of lending and taking a cut and someone posting conflicting information that questions usury is no threat to them at all!

Indeed.

I imagine a system where all capital gains associated with land (not the structures on the land) outside of the real inflation rate were captured via capital gains tax.

No income tax and bankers are at the back of the queue in life because they add very little value.

Bring it on.

Not everybody is struggling out there... tech has some of the highest salaries for any industry. It is workers that are not in tech like traditional taxi drivers which are losing out badly to these innovations.

yes, which is a hell of a lot more than people who work in tech, hence my point that these people don't choose this, it's thrust upon them by our flawed system which sees surplus value flow to the banks who create credit out of nothing to capture said surplus value.

Wow you got voted down

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair