Comment by nly | Hacker News Reader

Comment by nly | Hacker News Reader

I don't know what interest rates have to do with the distribution of wealth (between you and someone else), since they only effect the pricing of future cash flows today between you and your future self.

With higher rates the average home buyer will simply give less money to the former owner of a property and more to the bank over their lifetime. It will make no difference to overall affordability.

And before anyone harps on about saving for a down payment... consider that we're in the middle of a rental affordability crisis also, with rents rising 10%/yr... Why?

Well, wealthy property investors just shrug off the lack of capital growth going forward and jack up rents to maintain their total returns. Who can blame them?

If i'm a landlord I'm not going to settle for 3-4% rental yields (common in recent years in the South East and London) when I can earn that on risk-free government bonds in a much more tax advantaged way (there is no cap gains tax on them)

Furthermore the truly eye-watteringly wealthy will just buy property at a discount should the nominal price crash actually happen, take advantage of rising yields, and then wait for the next credit cycle to lever up again.

Let's not even get in to the National Debt which will put upward pressure on taxation over the next decade if rates remain high, and the frozen tax thresholds dragging tax payers in to paying more as inflation stays high.

The sad reality in the UK is real inflation adjusted earnings have been flat for decades. My entire adult working life in fact.

Those who think house prices are the problem need to consider that the median house price, adjusted for CPI, is actually the same as in 2007, before the GFC, when rates were also 5% or so...

The variable that changed (or rather didn't change) is salaries

The narrative needs to move to productivity and wages, because the UK is steadily becoming a poorer nation

> The sad reality in the UK is real inflation adjusted earnings have been flat for decades.

At least in the public sector, inflation adjusted earnings since the recession are down, often by over 20%, not flat.[1] This is why so many UK public workers are striking. Between the government, banks and landlords they’re making it almost impossible to live. Back in the feudalism days the ruling classes typically took between a third and a half of what the serfs produced[2] which is what is happening now as rents are taking over 30% of take home pay in many areas of the country.

> This means that 37% of the average single person's salary now goes on rent, though this proportion is even higher in London: a staggering 52%.[3]

Considering there’s all the other taxes like council tax, income tax, vat and whatever else, the average worker is most likely paying the same amount (or possibly more) to the ruling classes that they did in medieval times. It’s feudalism 2.0, there’s no other way of looking at it.

[1]https://www.ft.com/content/fac8062a-bd83-486b-ac6f-582f19317... - this is from January, so probably even worse now.

[2]https://web.cn.edu/kwheeler/feudalism.html

[3]https://www.refinery29.com/en-gb/single-person-salary-rent-p...

> I don't know what interest rates have to do with the distribution of wealth.

Highlights from this research: https://www.imperial.ac.uk/business-school/ib-knowledge/fina...

- We found a one percentage point drop in interest rates boosted the incomes of these top earners by five per cent over two years, while the lowest earners saw only a 0.5 per cent rise.

- Lower rates have a larger impact upon the value of assets than they do upon disposable income – and the wealthier have more financial and real assets.

Low interest rates benefits the rich more than the poor thus they can more easily outcompete the poor.

The average home buyer isn't a first time buyer. If they bought in the last 10 years they will have bought in a high prices, low interest rate world, and now are entering a high interest rate world with their high price already signed up for.

More money going to a normal person selling a house rather than a bank seems like it would directly related to income inequality.

The issue being that we are getting to a point where a lot of homes are owned by banks so they get their money either way.

> If i'm a landlord I'm not going to settle for 3-4% rental yields (common in recent years in the South East and London) when I can earn that on risk-free government bonds in a much more tax advantaged way (there is no cap gains tax on them)

You realize that when the price of the real estate go down, the yield in precent for renting them out will go up? In theory to match "risk free" bonds.

Not for existing property already owned. These landlords are sat on huge capital gains and are deciding whether their pitiful yield is worth it in the face of zero prospect of capital gains

The extra money to the bank will go to the shareholders of that bank. Wealth will move from home owners to bank owners.

Are rents in the UK rising 10% YoY? In the US, rents on new leases aren't rising anywhere near that fast.

Yeah, new leases were rising 11% as of January - https://www.bbc.co.uk/news/business-65103937.amp. I can’t find a more recent source, newer data looks at the overall market rather than new leases, and that’s at 4.9% as of May.

I work in Manchester and colleagues are complaining about rent increases, by up to 20% in their city centre places.

https://www.ons.gov.uk/economy/inflationandpriceindices/time...

ONS says RPI is 11% this month, peaked at 14% YoY end of last year.

Highest it's been since 1980

Yep, people need to understand that people are going to be a little reticent to give more money to the bank and keep less for themselves when selling their property, thus, they will have a propensity to raise their prices or not sell altogether.

On the other side of the equation, given higher costs, and giving fixed budgets for buying a home, people will have to quit buying or buying less valuable houses that they can still buy, probably smaller, or in less desirable neighborhoods.

The net effect is one of a net transfer of wealth to the financer viz-a-viz sellers and buyers.

We just invented reverse socialism.

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