UK "one of the wealthiest countries on the planet & getting wealthier by the day"

HAMISH_MCTAVISH

Graham_Devon wrote: »

I thought the basic principle laid out was that if your house goes up in value, you can spend more income. .

The established fact is that an increase in house prices leads to people spending more money in the economy.

There are a number of causal factors as to why that is the case, but make no mistake, it most certainly is the case.

ILW

HAMISH_MCTAVISH wrote: »

The established fact is that an increase in house prices leads to people spending more money in the economy.

There are a number of causal factors as to why that is the case, but make no mistake, it most certainly is the case.

Are they not also increasing debt/reducing savings which is just storing up problems for the future?

wotsthat

Thrugelmir wrote: »

Still doesn't answer the question as to people can spend more. Option A above, results in even lower level of income.

If someone is already spending 100% of income then they can't (easily) spend more if their house goes up in value.

Spending 100% of income is, in most cases, a choice.

We can only make our own choices and be ready to pick up the pieces when others make theirs.

Tancred

Loughton_Monkey wrote: »

I beg to differ.

All other things being equal, if I have a £200K pension fund, and you have a £300K pension fund, then that is a distinct and measurable difference in net worth. Presumably you would assess, say, my £250K Cash ISA as being exactly worth double your £125K Cash ISA (at retirement). Basically the same thing.

People don't take their cash ISA, the minute they retire, and blow it on a Porsche and a world cruise. They let it roll up, perhaps taking £10K a year out to buy a few extra goodies, and generally live on. So having it in a pension is the same. OK, pensions have a bag of rules [but we got 'free' money for that] and it pays out in a way consistent with the requirements of 99% of retirees....

As for the house, it is still wealth or 'net worth'. At the very least, the owner reaps a reward (just like a pension, really) in being able to live in it rent free. The full value can be fully materialised, and eventually will be, but (agreed) not necessarily by the owners themselves [but their heirs].

My £24 million rather poor painting of a daisy by some Dutch fellow is truly 'worth' £24 million, but I can't cut it up with a stanley knife into 24 pieces and sell them at £1m each.

I take your point but this is rather an academic argument. I count my wealth as being what I can spend right now, not what I might have if I live to 67 or whenever. And a house has a worth of course but again it's not 'liquid' - the house needs to be sold or remortgaged to raise the cash value.

the_flying_pig

HAMISH_MCTAVISH wrote: »

Indeed.

You seem to exist in some strange parallel universe where you can selectively ignore both asset values and capital letters.

but what am i missing? i refer you to my post 17 - given that we know the GDP per capita [income] figures already, what, in very simple terms, is the story as to why higher house prices in the UK tell you something meaningful about UK living standards vis-a-vis [say] French living standards?

e.g. i'll tell you a simple story about why UK GDP per capita is a lot higher than Portugese GDP per capita - quite simply, per head we make more stuff that's more valuable than the Portugese, mostly services, also some goods. that means that we: (a) have more stuff that we've made ourselves; and (b) sell stuff more to other countries enabling us to in return buy more stuff from other countries. end result, we've got quite a bit more stuff per person. it's all about the stuff.

what's the equivalent story for housing wealth?

e.g. might it be that we have higher quality housing stock than the French, giving us higher living standards? a plausible story perhaps, but obviously changes in the market value of that same stock wouldn't change our living standards... or would it?

Graham_Devon

wotsthat wrote: »

If someone is already spending 100% of income then they can't (easily) spend more if their house goes up in value.

Spending 100% of income is, in most cases, a choice.

We can only make our own choices and be ready to pick up the pieces when others make theirs.

So lets say they are spending 70% and being wise.

Why if their house goes up in value 10k can they now spend more of their income, without finding themselves at the end of the "you make your choice" analogy?

C_Mababejive

The few are wealthy at the expense of and due to the exploitation of the masses.

wotsthat

ILW wrote: »

Are they not also increasing debt/reducing savings which is just storing up problems for the future?

No point being the richest person in the graveyard. With some planning I'm sure it's possible to reduce net worth and retain a margin of safety.

HAMISH_MCTAVISH

ILW wrote: »

Are they not also increasing debt/reducing savings

Sometimes, yes.

And sometimes they're releasing equity through downsizing or selling an inherited house.

which is just storing up problems for the future?

Not necessarily.

Savings rates in recessions and when house prices fall (usually the same, as one tends to cause the other) tend to be excessive.

Excessive savings rates make us all poorer. (see 'paradox of thrift')

So after a recession/price crash it is required that savings rates reduce in order for the economy to recover.

This isn't "storing up problems"... It's a reversion to normality.

Also borrowing against equity to invest, improve your house or yourself, or start a business, can be "good borrowing".

Not all debt is bad....

wotsthat

Graham_Devon wrote: »

So lets say they are spending 70% and being wise.

Why if their house goes up in value 10k can they now spend more of their income, without finding themselves at the end of the "you make your choice" analogy?

Depends on age etc. but say they felt a bit flush because of their HPI gains why couldn't they spend 75%? A 25% saving ratio doesn't sound outrageously extravagant.

This isn't something that has been made up tonight. When people become more wealthy they spend more. I really can't see the point of increasing my net worth if I still spend the same as when I was p**s poor.