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Comment by zxcmx | Hacker News Reader

But that would be... inflation! High inflation would affect collective bargaining agreements, benefit increases, super increases and all sorts of measures designed to keep compensation increases in line with increased cost of living.

Central bank keeps telling us that inflation is "on target" at just 2% or 3% p/a for about the last 5 years. Meanwhile, housing inflated more like 40% (70% in Sydney!)[2] over that time, so how does that work?

OH WAIT, housing was excluded from CPI[3]. I wonder who decided that, and whose interest(heh) that might possibly be in?

[1] https://www.rba.gov.au/inflation/inflation-target.html

[2] http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows...

[3] http://www.abc.net.au/news/2017-04-20/inflation-data-suffers...

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Also, QE has involved giving banks trillions of dollars. The banks then either sit on the money, or use it to inflate the stock market and property markets. The stock market triples or quadruples and everyone says the economy is going well. The money never makes it to non-asset owning working stiffs, and consumer prices as measured by central bank mandated CPI measures don't really change. So the central bank and Keynesian economists brag that "inflation is under 2%! QE stimulus really is a no downside perpetual motion free growth machine!". And the press states that "nobel prize laureates" call for and support these measures, and politicians and the public assume that a "nobel prize laureate" in economics is like a "nobel prize laureate" in hard science, where awards are given for settled progress in science that everyone agrees on. And people don't realise that macro-economics and monetarism are nowhere near settled science, and that there are PLENTY of people still calling bullshit from the austrian/chicago school.

Sadly it looked like this silliness was going to continue forever.

Fortunately, the market has given us inflation-proof cryptocurrency, and these central banking bastards are finally going to have to test their theories and put their ideological balls on the line in a free market with the ability of nation states to control currency as the price for shitty science. Good luck to them - they will need it.

Are you saying that you see crypto as a possible solution to this problem? Can you elaborate at all on that?

Previously the only real options we have to use as "money" are nation-state derived and under the control of central bankers. For various reasons, nothing else (eg. gold, stocks, property) presented a practical alternative to state issued money in fulfilling the core functions of: - medium of exchange - unit of account - store of value Central banks and governments always ended up debasing their currencies. They ranged from super-corrupt to just believing weird keynsian-stimulus stuff, and always end up printing money and debasing the currency. QE given to corrupt politicians as happens in africa enriches the politicians at the cost of everyone else holding or earning the currency. QE given to bankers as in USA enriches asset owners at the cost of savers and wage earners.

Finally, cryptocurrencies with fixed, limited inflation schedules provide a competitive non-inflationary alternative to state issued currency.

Whats to stop crypto currencies from being just another asset class, to be hoarded exclusively by rich?

I don't know about Australia but if it's like the US, housing is not excluded entirely but there is a lag based on how long it takes for rents to rise.

People are not all affected by changes in housing prices immediately. If you own your home or pay below market rent you won't be affected until later. A survey asking how much people actually pay will have a built-in lag.

People generally don’t borrow money to pay their rent, so rent prices are restricted by local salaries.

People borrow the vast majority of the cost of a house to buy it, so housing prices are largely only restricted by how much banks are willing to lend and how much it costs to borrow — all of which is heavily influenced by central banks.

Also, no one speculates on real estate by renting. It isn’t just how much money buyers can borrow, even if they are paying for it all in cash and don’t plan on living in the property, it also about perceived upside.

That is an obvious statement, and yet it has never occurred to me. I now (finally) understand why renting is generally a better decision than buying.

Glad to hear it helps!

The NYT has a good “buy vs rent calculator” that’s worth checking out:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Even though the calculator is useful, it’s important to have a really good understanding of why housing is so much more expensive today (as a percentage of avg annual income) than it was 50-60 years ago. For that I recommend a short, but extremely useful book, The Housing Trap:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

No do not confuse land prices with rents. Rents are set by wages. Land prices are set by loose credit.

I like how succinct this comment is.

Is there a conclusion on the global movement of rent prices in comparison to house prices?

> Rents are set by wages.

That is incorrect. Loose credit most definitely affects rents, as in more people can now afford to buy real-estate (houses, apartments), that reduces the supply of available places to rent (assuming no new constructions take place, for the sake of the demonstration), and generally speaking a reduced level of supply has been accompanied by higher prices, in this case higher rents.

Yes, the supply of rental is affected, but the previous poster's point was that demand is anchored by reality (wages) and not speculation (bank loans).

Exactly. Inflation is calculated based on a basket of goods that excludes all kinds of expensive and illiquid assets that the average person doesn't buy often or at all.

I guess it's fine if people want to describe that situation as low inflation with an asset bubble. But I think what is actually happening is that, although much of the world now gets to eat well and enjoy consumer goods, all kinds of assets (property, artwork, luxuries and anything requiring rare resources) are moving up and up out of people's reach).

Interesting idea, but bear in mind stocks and other investment vehicles also have highest historical prices.

We could consider that the inflation that was supposed to happen with QE ended up just inflating assets prices. But that would still be an overall good thing, because asset prices are not what harm the greatest body of people, nor affect their wages like regular inflation does. People will not be thrown into poverty because apple has historic highs.

In terms of housing, we should look at rental prices more than housing prices. Is that going up as fast as house values? I dont think so.

>But that would still be an overall good thing, because asset prices are not what harm the greatest body of people

I think it takes a lot of gall to post this, considering that asset prices hurting people is the topic of the thread and the gist of GP's post. I would say it's certainly not an overall good thing; it's good for the landed class and hurts everyone else.

The OP talks about inflation indexes not taking into account house values, and thus somehow not reflecting what the actual situation of the people is.

Inflation typically doesnt take into account investable assets, it just accounts for the requirements of daily living. Rental prices is one of those, housing prices are more tangential. Its reasonable to exclude the last.

> it's good for the landed class and hurts everyone else.

If it were cheaper and more people purchased land, then the landed class would be bigger. There is some paradoxical notion to saying the rules you have favors the 'rich' and they should change so there are more 'rich'.

There is no paradoxical notion there. Expanding the landed class and benefitting the landed class are opposites. Homeownership brings freedom; making freedom accessible is a noble goal, while rewarding only those who already have it is counterproductive. That anyone could believe otherwise smacks of too much time in ivory towers and not enough time in shitty apartment complexes which teach through omission the value of homeownership.

Asset prices rising unsustainably hurts everyone. Almost every depression is preceded by asset bubbles.

Many types of loans are secured by assets, so when those bubbles pop, the loans get called, which depresses asset prices further and further.

Asset bubble != asset inflation.

Bubble implies it has to pop, inflation is just raise in prices overall.

To this moment its unclear if we have a bubble or not.

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