You need a mortgage because you don't have $400,000 in cash sitting around.
You need insurance because you don't have the personal finances to adequately cover the risk of "life"
You need insurance because you don't have the personal finances to adequately cover the risk of "life"
Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage.
Mortgages are a necessary part of society. Profit-making banks are not.
The only reason you spend your life slaving away paying extra interest to the shareholders of banks, is because banks have manoeuvred themselves into a privileged position. Inequality is not an accident of the system, it is the point of the system.
You could have a default on a loan if you were paying for your house with NukaCola bottle-caps, or engraved-crab-shells.
As you noted, the concept of a "loan" entails the possibility of default.
If most currency is created through loans and loans must be repaid in that currency, the system-wide probability of defaults is significant. The likelihood of defaults increases as loans require payors to also include tribute payments (interest), for which no currency was ever created (necessitating that the payor obtain the requisite currency from someone else before the default day occurs).
The bank that is the closest to this model (that I know of) is Mondo (due to be launching soon). Along with it's other innovations, it plans to allow you to invest money via Funding Circle for a potential return:
http://www.thememo.com/2015/06/25/meet-mondo-the-app-thats-g...
This is a smart idea on a couple of levels, it mitigates against the risk of bank runs and it provides a better return than many high street banks offer (the current average return rate from Funding Circle is 6.6%):
Mortgages are secured loans, so an individual default is no problem. The primary risk is of mass default (a housing crash).
If you agree with the pseudo-MMT view of the world, then the mortgage is created out of thin air in the first place, so if everybody defaults all that happens is that the money supply increases permanently instead of temporarily.
It wasn't just banks making poor decisions in 2007 about who should have a mortgage.
That is true only if you are not concerned about being repaid at a reasonable rate of interest. Lenders need to assess credit and interest rate risk.
And a large part of why housing costs $400,000 in the first place is due to the availability of mortgages. Mortgages gave themselves a reason to exist.
A 500 sq ft monolithic dome house costs around $30k. It fulfills all the roles of a normal house, but better, safer, and cheaper.
Now tell me how I'm wrong because "furniture doesn't fit in curved walls" and how that justifies the $370k discretionary increase in how much you want to help banks prey on homeowners and earn more interest.
Well, yeah, if you are going to have a house that small -- 500 sq. ft. -- optimal shape is a pretty big concern.
> and how that justifies the $370k discretionary increase
Well, much of the increase is going to be land price. Even a 500 sq. ft. dome home anywhere more typical home prices for reasonably moderately sized homes are around $400,000 is going to be a lot more than $30k just of the land it sits on.
There were fourteen of these domes, run as a cooperative, on three acres of land. The loans on building them were paid off in full by the early eighties, and I believe there was about a decade where no one paid rent. But eventually it was decided that a nest egg should be built up for upkeep and so on; by the time I was there, it was running about a third of market rent, and these days (due to some additional pressure to modernize) the rents are up to about 2/3 market.
Cooperative ownership is fantastic, and a great cure for the ails of capitalism. But they tend to not get a lot of investment for exactly the same reason: capital isn't interested in investing in non-capitalist spaces.
But it's certainly possible to band together with some friends to get an initial down-payment+loan. Then you incorporate the cooperative, and essentially 'sell' the house to the new cooperative, so that the 'rent' you pay to your new co-op pays off the bank loans. Once the loans are paid off, the cooperative becomes an autonomous creature, self-sustaining as long as there are people happy to live with other people and decide how the place will be run, rather than dealing with a landlord...
> Cooperative ownership is fantastic, and a great cure
> for the ails of capitalism.
I agree capital tends to avoid housing co-ops because they smell funny and act differently and the laws around them are a mess. As a result, it's harder to assess the risk for a co-op than other businesses and more complicated to borrow, contract, etc.
Diamond/water paradox
Also, there's no paradox.
Also, high diamond costs are due to marketing.
For a space smaller than a typical studio apartment. The Monolithic Dome Institute[1] quotes domes at $125/sf (including walls) for a "regular" finish. Your $30,000 dome would have a footprint of 250 sf. My house would cost at least $287,500 to replace with a dome; in contrast, it would cost about $150,000 to replace it with another wood-framed house. Concrete block costs would depend heavily on how complex the floor plan is, but would still be cheaper than a monolithic dome.
[1] http://www.monolithic.org/forms/the-residential-evaluator
If mortgages never existed then people would value housing much less because it's no longer $x monthly, it's the whole thing up front.
You're right that a portion comes from material cost but the cost inflates to fit the budget of the expected buyer. Without mortgages the typical suburban house would be built so that a middle-class person could afford it.
From this you can argue that mortgages are a good thing because they allow a person with less wealth to get more/better houses by leveraging future income, but the trade-off is that buyer takes on more risk, there are no low cost homes in good neighborhoods which could be reasonably bought outright, and people are more dependent on their credit rating.
No, most of the value in a home comes from the land underneath it. The point being made above is that the availability of credit leads to asset inflation, as more people are able to compete for the same scarce things (desirable living locations).
Mind you, credit does have a purpose - if your income and your house's value appreciate faster than the interest rate being charged to you, then you were able to gather the resources for it.